However, investors should not abandon the core of their portfolios while chasing newer opportunities, according to A. Balasubramanian, Managing Director & CEO of Aditya Birla Sun Life AMC Ltd.
Speaking at the ET Wealth Expo 2026, Balasubramanian said mutual funds should continue to form the core of an investor’s portfolio, while alternative investments can play a satellite role in potentially enhancing returns and broadening diversification.
“The way you look at investing is through the construction of a portfolio—your core versus satellite,” he said, adding that the core would continue to comprise traditional mutual fund asset classes, while alternatives could complement the portfolio.
Alternatives gain momentum as wealth expands
The growing participation of Indian investors in capital markets, coupled with the increasing habit of regular savings through SIPs, has transformed the country’s investment landscape over the past decade.
Balasubramanian said the wealth effect created by vibrant capital markets has also resulted in greater participation in direct equities, particularly after the Covid-19 pandemic.As investors build meaningful exposure to listed equities, many are now exploring opportunities across alternative assets, including fixed income, real estate, REITs and InvITs.
“Alternative is one space where a lot of innovation is happening in the form of differentiated product offerings,” he said, adding that India could be at the beginning of the next wave of growth in alternative investments.
Could alternatives grow faster than mutual funds?
Balasubramanian expects the alternative investment segment to potentially grow faster than the mutual fund industry, albeit from a smaller base and with a more limited customer segment.
He noted that while the mutual fund industry’s average growth is around 18%, a portion of that growth is influenced by market appreciation. The growth in alternatives, on the other hand, is driven more directly by the expansion of investor wealth and demand for differentiated investment opportunities.
In his view, the alternative investment business could grow at around 20-25%, supported by the growing wealth of affluent investors and their search for opportunities beyond listed equities.
The investor experience in alternative assets has also evolved over the past several years, he said, with the asset class delivering relatively more stable outcomes compared with earlier cycles.
While the number of investors in alternatives may remain lower than in mutual funds, the value of investments could be significantly higher, Balasubramanian said.
More choices also mean more risk
The growing range of investment options, however, brings its own set of challenges.
“More choices” can also mean “more risk”, Balasubramanian cautioned, particularly at a time when investors are navigating uncertainty across global equity, fixed-income and alternative asset markets.
He pointed to the volatility in global bond markets and the significant investments being made in emerging themes such as artificial intelligence.
While AI represents a real opportunity, investors also need to consider the economics of these investments, including the time it may take for companies to generate adequate returns on the large amounts of capital being deployed.
The key question for investors, therefore, is how much of their portfolio should be allocated to genuine long-term investments and how much risk they are willing to take in more speculative opportunities.
Against this backdrop, Balasubramanian said fixed income should not be ignored as part of a diversified portfolio. He also highlighted earning assets, including equity, fixed income and credit-oriented alternatives, as areas investors could consider depending on their risk appetite and asset-allocation strategy.
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Fixed income offers ‘real’ returns; equity needs patience
One of the key messages from the discussion was the importance of setting realistic return expectations.
Balasubramanian described fixed-income returns as more tangible because investors can see the interest income accruing over time, although credit risks and defaults remain important considerations.
Equity, on the other hand, can appear unpredictable in the short term, even though it has the potential to create wealth over longer periods.
Investors should therefore be cautious about expecting their money to double in a year or two, he said, arguing that such returns may not be sustainable.
The broader lesson is that investing requires patience and a realistic understanding of how different asset classes generate returns over different time horizons.
Focus on return of capital, not just return on capital
Balasubramanian also offered a simple principle for investors evaluating opportunities, particularly in fixed income and less familiar asset classes: focus not only on the return on capital but also on the return of capital.
Investors need to understand whom they are lending to, assess governance and underlying fundamentals, and avoid being swept up by market euphoria or promises of unusually high returns.
He cautioned investors against chasing asset classes or opportunities that appear highly promising but are yet to prove themselves.
“Ultimately, the core asset classes should be part of your portfolio,” he said, emphasising the importance of long-term investing and the power of compounding.
The final message was clear: alternatives may well represent the next major wave in India’s investment journey, but they should complement—not replace—a strong portfolio core built around long-term goals, sound fundamentals and disciplined asset allocation.
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)