Alternative investments play an important role in mutual fund portfolios by helping to diversify and reduce overall risk. They include assets like real estate, commodities, private equity, and hedge funds that are different from traditional stocks and bonds. Adding alternatives can improve returns and protect the portfolio when stock or bond markets are not performing well.
What Are Alternative Investments?
Alternative investments are assets other than traditional stocks, bonds, or cash. They include things like real estate, commodities (gold, oil), private equity, hedge funds, and more. These assets usually have low correlation with regular market investments, meaning they do not move exactly the same way as stocks or bonds.
This helps in spreading risk and improving portfolio stability.
Why Include Alternative Investments in Mutual Funds?
Including alternative investments helps mutual funds reduce risk because these assets do not always follow the same market trends as stocks and bonds. This means if the stock market goes down, alternatives might hold their value or even go up, protecting the portfolio from big losses.
They also offer a chance to earn returns that are not linked to traditional markets, adding growth potential.
How Do Alternative Investments Reduce Portfolio Risk?
Alternative investments usually move differently than stocks or bonds. This means their prices do not fall or rise at the same time as traditional investments. When one asset class is down, the others may go up or stay stable, balancing out the overall portfolio.
This reduces the chance of big losses and helps keep steady returns over time.
What Are Some Common Alternative Investments in Mutual Funds?
Some common alternative investments included in mutual funds are real estate investment trusts (REITs), gold or other commodities, private equity funds, and hedge funds. These help add variety and reduce dependence on the stock and bond markets.
Many mutual funds now offer schemes that mix alternatives for better balance.
Are Alternative Investments Risky?
Alternative investments can have risks like lower liquidity, higher fees, or market complexities. However, their low correlation with traditional assets makes them useful to balance risk. Investors should understand these risks before investing and choose alternatives that fit their goals.
Proper knowledge and planning help get the benefits while managing risks.
How Can Investors Add Alternative Investments to Their Portfolios?
Investors can add alternatives by choosing mutual funds or schemes that include assets like real estate, commodities, or private equity. It is best to start small and understand how these investments fit with overall goals and risk tolerance.
Consulting with financial advisors can help make better choices.
Contact Angel One Support at 7748000080 or 7771000860 for mutual fund investments, demat account opening, or trading queries.
© 2024 by Priya Sahu. All Rights Reserved.
