After dabbling in traditional investment avenues like stocks, fixed deposits, gold, mutual funds and real estate, some investors are
venturing into more adventurous territory—digital currency, crowdfunding and P2P funding—to make their wealth grow.
While the returns have been satisfactory in many cases, others have lost money too. We look at the pros and cons of some alternative investing avenues.
Bit by bit
There are a little over 15 million bitcoins in circulation today and no more than 21 million will be mined ever, making the virtual currency attractive to investors. The rising demand for and lack of supply of have pushed up the price of bitcoins from $16 per coin in 2013 to $1,700
Sensing the potential of bitcoins as an investment, Bengaluru-based Ashrith Govind, 23, started investing Rs 5,000 a month in the cryptocurrency three year.Encouraged by the returns—30% annually— he is now investing Rs 30,000 a month.
Ashrith Govind, 23, Bengaluru
His alternative investment: Started investing Rs 5,000 a month in bitcoins in 2014. Now invests up to Rs 30,000 a month.
However, an investor in bitcoins has to be ready to face extreme volatility. In 2015, Govind lost Rs 1.5 lakh when price of bitcoins dropped significantly. One bad trading day can mean a loss of Rs 12,000 for him.
Sathvik Vishwanath, CEO and Co-Founder of online platform Unocoin says, “There is a financial risk in investing in bitcoins. Like in equity markets, investors tend to buy when prices are up and sell at lows. Then there is a technology risk too which can render bitcoins virtually worthless in future.”
More importantly, the legality of bitcoins is in question in India. Warning against the use of bitcoins, Minister of State for Finance Arjun Ram Meghwal stated in Parliament that, “The absence of counter parties in usage of virtual currencies including bitcoins, for illicit and illegal activities in anonymous/pseudonymous systems could subject users to unintentional breaches of anti-money laundering and combating financing of terrorism laws”.
Financial advisers feel bitcoins as an asset class should ideally be avoided. Shree Parthasarathy, Partner, Deloitte Touche Tohmatsu India warns, “The money invested in bitcoins, if at all, should form an insignificant part of your portfolio and you should be able to afford to lose all that money.”
Lend and earn
P2P platforms have 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 so far, he has earned an average return of 20%.
Jose Joseph, 45, Chennai
His alternative investment: Started lending money on P2P platforms in 2015. Has invested Rs 1 lakh so far.
However, before lending you should study the borrower’s profile carefully to compute the risks before making a lending decision. Rajat Gandhi, CEO and Founder of P2P lending firm, Faircent, says, “Most P2P platforms provide details about borrowers. They are classified across risk buckets from low to very high and selection should depend on your expectations.”
The biggest risk is that of defaults and P2P platforms not helping in collections. So, before you lend money ask about the platform’s collection assistance policy.
As Bhavin Patel, CEO of P2P lending firm LenDen-Club says, “P2P lending is still at its nascent stage. It’s unclear what will happen to a P2P loan during a major downturn. Lenders need to be careful when the economy is slowing down.”
Going with the crowd
Crowdfunding has 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 of products and services the company is going to offer. I prefer to interact with the founders and core management team for better insights.”
This mode of investing works best for those with a long time . horizon of at least 5 years as probability of losses is high in the initial 2-3 years.
Sandeep Aggarwal, 44, Gurgaon
His alternative investment: Has been investing in startups through crowdfunding since 2015. Has invested in nine startups so far.
Chaitanya V. Cotha, serial entrepreneur and investor cautions, “Such investment comes with a lot of terms and investors own a very small stake. There are no rights for the investor and you don’t really have a voice in decision making made by management.”
According to Apoorv Ranjan Sharma, Cofounder and President, Venture Catalysts, the common risk in investing through crowdfunding is the herd mentality among investors. The other risk is the product not seeing the light of the day because of operational challenges. Chances of fraud are also high. As Cotha says, “Many so-called start-ups are in the market looking for a quick buck.”