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After dabbling in traditional investment avenueslike stocks, fixed deposits, gold, mutual funds and real estate, some investorsare venturing into moreadventurous territory—digital currency, crowdfunding and P2P funding—to maketheir wealth grow.
While the returns have been satisfactory in manycases, others have lost money too. We look at the pros and cons of somealternative investing avenues.
Bit by bit
There are a little over 15 million bitcoins incirculation today and no more than 21 million will be mined ever, making thevirtual currency attractive to investors. The rising demand for and lack ofsupply of have pushed up the price of bitcoins from $16 per coin in 2013 to$1,700today.
Sensing the potential of bitcoins as aninvestment, Bengaluru-based Ashrith Govind, 23, started investing Rs 5,000 amonth in the cryptocurrency threeyears ago. Encouraged by the returns—30%annually— he is now investing Rs 30,000 a month.
Ashrith Govind,23, Bengaluru
However, an investor in bitcoins has to be readyto face extreme volatility. In 2015, Govind lost Rs 1.5 lakh when price ofbitcoins dropped significantly. One bad trading day can mean a loss of Rs12,000 for him. Sathvik Vishwanath, CEO and Co-Founder of onlineplatform Unocoin says,
His alternative investment:Started investing Rs 5,000 a month in bitcoins in 2014. Now invests up to Rs30,000 a month.
““There is a financial risk in investing inbitcoins. Like in equity markets, investors tend to buy when prices are up andsell at lows. Then there is a technology risk too which can render bitcoinsvirtually worthless in future.” More importantly, the legality of bitcoins is inquestion in India. Warning against the use of bitcoins, Minister of State forFinance Arjun Ram Meghwal stated in Parliament that, “The absence of counterparties in usage of virtual currencies includingbitcoins, for illicit andillegal activities in anonymous/pseudonymous systems could subject users tounintentional breaches of anti-money laundering and combating financing ofterrorism laws”.
Financialadvisers feel bitcoins as an asset class should ideally be avoided. ShreeParthasarathy, Partner, Deloitte Touche Tohmatsu India warns, “The moneyinvested in bitcoins, if at all, should form an insignificant part of yourportfolio and you should be able to afford to lose all that money.”
Lend and earn
P2P platformshave brought lenders and borrowers closer. Technology allows easy credit to borrowers,while lenders earn high returns on idle funds. Chennai-based Jose Joseph, 45,has been lending on P2P platforms since 2015. On the Rs 1 lakh he has put in sofar, he has earned an average return of 20%.
Jose Joseph,45, Chennai
Hisalternative investment: Started lending money on P2P platforms in 2015. Hasinvested Rs 1 lakh so far.
However,before lending you should study the borrower’s profile carefully to compute therisks before making a lending decision. Rajat Gandhi, CEO and Founder of P2Plending firm, Faircent, says, “Most P2P platforms provide details aboutborrowers. They are classified across risk buckets from low to very high andselection should depend on your expectations.”
The biggestrisk is that of defaults and P2P platforms not helping in collections. So,before you lend money ask about the platform’s collection assistancepolicy.
As Bhavin Patel, CEO of P2P lending firmLenDen-Club says, “P2P lending is still at its nascent stage. It’s unclear whatwill happen to a P2P loan during a major downturn. Lenders need to be carefulwhen the economy is slowing down.”
Going withthe crowd
Crowdfundinghas also found favour among those looking to invest in the startup space.Gurgaon-based Sandeep Aggarwal has invested in nine startups till now this way.Aggarwal says, “I make it a point to understand the market and longevity ofproducts and services the company is going to offer. I prefer to interact withthe founders and core management team for better insights.”
This mode of investing works best for those with along time horizon of at least 5 years as probability of losses is high in theinitial 2-3 years.
SandeepAggarwal, 44, Gurgaon
Hisalternative investment: Has been investing in startups throughcrowdfundingsince 2015.Has invested in nine startups so far.
Chaitanya V.Cotha, serial entrepreneur and investor cautions, “Such investment comes with alot of terms and investors own a very small stake. There are no rights for theinvestor and you don’t really have a voice in decision making made bymanagement.”
According to Apoorv RanjanSharma, Cofounder and President, Venture Catalysts, the common risk ininvesting through crowdfunding is the herd mentality among investors. The otherrisk is the product not seeing the light of the day because of operationalchallenges. Chances of fraud are also high. As Cotha says, “Many so-calledstart-ups are in the market looking for a quick buck.”
