What are Non-Market Linked Investments and why they're essential for your portfolio

When considering investments, the first two things that come to mind are stocks and bonds. However, there’s much more to investing than just market-linked investments, and globally, over 81% of ultra-high net worth individuals hold alternative and fixed income investments. In contrast, retail investors have only about 5% of their investments in alternative products.

While this disparity is probably because the ultra-rich have access to a wide spectrum of information and opportunities for alternative investments, companies like Per Annum, by the founders of Lendbox, are unlocking a plethora of alternative investment products that were previously unavailable to smaller retail investors.

First, what are these non-market linked investments, and why should you include them in your portfolio?

In a nutshell, non-market linked investments are products that do not depend on the public equity or tradeable debt markets to give returns. These could be products like gold, real estate, P2P Debt, invoice discounting, commodities and cryptocurrency, among others.

But why should you diversify your portfolio using NMLIs? Here are three solid reasons.

Risk

Traditional investments run the constant risk of market movement and volatility. In 2022, the stock market has been one of the most volatile on record as inflation rates and geopolitical issues are rising. If you have experienced a firsthand hit in the bear market of 2022, you’ll agree that it’s best not to have all your eggs in one basket.

And you’re not the only one who thinks so.

The 60/40 investment strategy of stocks and bonds is no longer sufficient to combat the market turbulence observed over the past few years. Instead, experts recommend a broader allocation of funds to achieve long-term growth and better returns. By diversifying your portfolio with non-market linked investments, you can effectively mitigate this market volatility, reduce your overall risk exposure, and possibly provide a hedge against inflation and volatility.

Inflation hedge

With inflation levels in Q2 of 2022 at 7%, it is still pretty high compared to RBI’s target, making it essential for investors to put their money into assets that provide a safety net against inflation. Traditionally, people turned to commodities like oil and avenues like real estate to maintain their asset values even in a high-inflationary environment. But today, there are innumerable other options to choose from and you should diversify your portfolio by investing in multiple inflation-proof assets.

Inflation-proof non-market linked investments can look slightly different for institutional investors as opposed those for retail investors. For example, retail credit is a non-market linked investment that could beat inflation for an extended period. It includes various consumer credit products like credit cards, loans, mortgage banking, and residential lending.

Another example of an inflation-proof non-market linked investment is real estate, which is considered one of the safest investment options for the long term.

Real estate investments require a larger starting capital as well as extended holding periods, but they are easier to understand compared to market-linked investments because no technical chart-reading skills are required for them and they are overall unlikely to be volatile. However, these investments yield good returns in the long run as the population increases and the demand for property rises. In fact, 2021 saw the biggest price increase in real estate in the last 20 years.

In addition to increasing your capital over time, real estate investments also provide you with an additional rental income that can take care of maintenance and repair costs.

However, real estate investments carry a huge downside. They can be extremely difficult to value and have a long cycle to sell, making them highly illiquid, which might not be something everyone is comfortable with.

Okay, so how do you go about investing in Non-market linked products?

For any investment, due diligence plays a massive role in how successful your investment is.

Finding the best investments which are not subject to the unpredictabilities and sentiments of the public markets can be tricky because they’re often complex and come with their own set of caveats, with less publicly available information for you to invest confidently.

However, the team behind Lendbox has revolutionized this space with their new platform  - Per Annum.

Per Annum is a wonderful inclusion to a retail investor's portfolio as it allows you to earn a fixed return of up to 11% every year by deploying a minimum capital of INR 50,000 across a skillfully curated list of alternative investments - that’s double what most Fixed Deposits will give you.

Moreover, the platform allows you to choose whether you want your investment to be fixed or flexible (liquid). This means that you can choose whether to invest for a fixed period or you want to withdraw the money from time to time. This is a great benefit because most alternative assets' primary disadvantage is their relatively illiquid nature.

What’s more? There is no TDS deduction when you withdraw your funds from the platform. So if you’re looking to allocate funds to non-market linked investments, sign up to invest in Per Annum today!