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Below the Quote on Why Alternative Fixed Income Investments is Trending in the fintech ecosystem in India By Jayaprakash K, Chief Growth Officer, AI Growth

Over the past six months, alternative fixed income investment platforms have reported significant increases in transaction volumes. This surge signals growing understanding and investor confidence in the sector, fuelled by consistent returns, a track record of reliability and the recent industry developments. The industry’s expansion is also indicative of a broader shift toward diversification beyond traditional investment options, not just among younger investors but also seasoned investors who are savvy with alternative investment opportunities.

Increased Demand for Portfolio Diversification

Diversification remains a key motivator, as investors seek to balance portfolios traditionally skewed toward equities with relatively lower-risk fixed-income assets. Alternative fixed income investments offer a counterbalance, providing predictable returns that add more stability to portfolios compared to equities often offering competing returns, especially during uncertain economic periods. Alternative fixed income investments offer an average return of over 12% annually, typically ranging between 8 and 18%. This diversification potential has led to higher adoption rates, particularly among those looking to protect their investments against stock market volatility.

Advanced Risk Mitigation and Transparency Mechanisms

Investors are prioritizing risk controls in ways that are reshaping the alternative fixed income investment landscape. Platforms in this space are responding with advanced risk mitigation mechanisms that include added collateral security, insurance coverage and escrow protections, allowing investors to have confidence in the risk controls and the transparency of their returns.

Range of Investment Options and Tenures

Alternative fixed income products offer a wide range of options in terms of tenure, which can start from just 30 days to longer commitments of up to 36 months. This flexibility allows investors to achieve portfolio diversification, spreading investments across different timelines and risk profiles to balance liquidity with long-term returns. This makes it a great wealth creation opportunity for those looking to earn better risk adjusted returns in the short to medium term.

The Future of Alternative Fixed Income Investments in India

The alternative fixed income investment sector is evolving and is set to grow in a big way among all capital market investors especially the high-net-worth individuals and institutional investors. The steady growth in this space highlights a strong demand for predictable investment products without volatility that are relatively low risk than equity and can provide very competitive returns. This trend is also in line with the global shifts toward alternative

assets, which will capture an increasing share of portfolios as people seek resilient and accessible options in their wealth-building journeys. Whether you’re a new investor or a seasoned market participant, fixed-income alternatives provide a practical, and relatively lower risk way to participate in wealth creation. There is no better time to explore these offerings and consider how they can bring stability, growth, and financial prosperity into your life.

Primary Risks of Investing in Alternative Fixed Income Investments

1. Credit Risk: This is defined as the ability of the borrower to repay the investors on time and not default on their payments. While presence of security collateral or other risk controls can help reduce the risk, the risk of default is not entirely eliminated.

2. Liquidity Risk: Unlike traditional investments, alternative fixed income investments can often have limited liquidity, meaning they may be challenging to sell quickly without incurring a loss, especially in adverse market conditions.

Key Parameters to Watch Out for Before Investing in Alternative Fixed Income Investments

1. Track Record and Management Expertise: Review the investment's historical performance and the experience of the team managing the asset. A strong track record and reputable management can offer greater stability and transparency.

2. Exit Strategy and Liquidity Terms: Evaluate the terms for exiting the investment, including penalties for early withdrawal and the typical time frame for liquidity. This is crucial to ensure alignment with your financial goals.

3. Risk-Return Profile: Assess whether the potential returns justify the risks involved. Understanding the specific risk-return balance for alternative fixed income investments compared to other assets in your portfolio is essential for making informed decisions.

4. Fees and Expenses: Look into the fees associated with the investment, including management fees, performance fees, and any other costs. High fees can significantly impact returns, especially in the long term.

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