Speaking during a panel discussion titled ‘Following Smart Money’, Jain said alternative investments should be viewed as a means of accessing underlying opportunities in equity and fixed income that may not be readily available through conventional listed markets.
He highlighted private markets, alternative investment funds (AIFs), private credit, special situations, REITs and InvITs as avenues that could help investors diversify their portfolios and explore opportunities beyond traditional asset classes.
“Alternatives are one of the vehicles through which investors can access underlying equity and fixed-income opportunities that may not be available in the listed space,” Jain said.
Private markets offer access to emerging businesses
Jain said private markets could become particularly relevant for investors seeking exposure to sectors and businesses that are still evolving and may not yet have adequate representation in listed markets.
He cited defence, engineering and artificial intelligence (AI) as examples of sectors where emerging companies could become significant businesses over time. Investors looking to participate in such opportunities may need to explore private markets, he said.
“Some companies that have the potential to become large businesses in the future may not be available in the listed space today. If investors want exposure to such sectors, private markets become an important avenue,” Jain said.He added that investors looking to participate in startups and early-stage businesses may find limited opportunities in the listed market, making alternatives an important route to consider.
According to Jain, private markets could also offer attractive entry valuations relative to public markets in certain cases, although investors need to assess each opportunity on its own merits.
Why AIFs could be preferable to direct startup investments
Jain said investors seeking exposure to startups and private equity opportunities should consider the advantages of investing through professionally managed funds rather than investing directly in individual businesses.
He explained that fund managers can bring specialised expertise to evaluating businesses, assessing risks and structuring investments. They may also be better positioned to understand shareholder rights and other contractual considerations involved in private-market investments.
“If someone wants to invest in private equity or startups, investing through the AIF route can be preferable because the fund manager’s ability to evaluate these opportunities is much stronger,” Jain said.
He added that the ability to assess businesses and structure investments appropriately becomes particularly important in private markets, where information availability, governance arrangements and exit opportunities can differ from those in listed equities.
However, investors must also consider the risks associated with alternatives, including limited liquidity and longer investment horizons.
Private credit and special situations can broaden fixed-income portfolios
Beyond equities, Jain identified private credit, special situations, infrastructure investments, REITs and InvITs as opportunities for investors seeking to diversify their fixed-income allocations.
He said several of these instruments are available primarily through alternative investment structures and can provide access to opportunities that conventional listed debt markets may not offer.
Jain suggested that investors could consider allocating around 20-30% of their fixed-income portfolio to private credit, depending on their circumstances and risk appetite. He also highlighted special-situation strategies as a related avenue worth evaluating.
“Private credit and special situations are quite similar in nature, although they are often presented as different categories,” he said.
According to Jain, these strategies may help investors seek enhanced yields, but the potential benefits must be weighed against the risks associated with the underlying borrowers, deal structures and liquidity constraints.
He also pointed to REITs, InvITs and pre-REIT or pre-InvIT opportunities as areas investors could explore. Such investments can provide exposure to commercial real estate and infrastructure assets, potentially offering income opportunities that differ from conventional fixed-income instruments.
Jain cautioned that investors may have to remain invested for longer periods and accept limited liquidity in exchange for these potential benefits.
Global diversification remains important, but valuations matter
Discussing international investing, Jain said global equities could form a part of an Indian investor’s portfolio, although the allocation should depend on the overall asset mix and prevailing market valuations.
He noted that while Indian equities had delivered relatively subdued returns over the preceding two to three years, global equities also appeared expensive at the time of the discussion.
His recommendation was to avoid treating overseas investments as an automatic solution to domestic market concerns and instead approach them as part of a broader diversification strategy.
“From an allocation perspective, around 10-15% of the equity portion of a portfolio can be invested in global equities,” Jain said.
He suggested that investors could consider a combination of emerging markets, passive strategies and actively managed global investments, adjusting their allocations as market conditions evolve.
The allocation, he indicated, should be assessed in the context of the investor’s overall portfolio rather than in isolation.
Risk should come before returns and tax savings
Emphasising the importance of disciplined portfolio construction, Jain said investors often make the mistake of prioritising tax benefits or expected returns without adequately evaluating risk.
He argued that the sequence of decision-making should begin with understanding the risk involved, followed by the potential return and then the tax implications.
“We always tell clients: first comes risk, then returns, and then tax,” Jain said. “Investors often reverse this order based on what suits them, choosing an investment because it offers tax savings without adequately considering the risk.”
Jain’s comments underline the importance of evaluating alternative investments in the context of an investor’s financial goals, liquidity requirements, risk tolerance and investment horizon.
While alternatives can provide access to private businesses, specialised credit strategies and infrastructure-linked opportunities, they are not substitutes for a well-diversified portfolio of traditional assets.
For investors considering these instruments, the central question is not simply whether alternatives can enhance returns, but whether the additional complexity, liquidity constraints and risks are justified by the role they play in the overall portfolio.