Five Investment Alternatives to Consider Instead of SME IPOs
Investors looking to grow their wealth should explore a variety of investment options, especially as SME IPOs can be unpredictable. While these IPOs may promise high returns, alternatives like mutual funds, stocks, ETFs, real estate, and REITs offer more stable and potentially lucrative opportunities. Each of these investment avenues provides unique benefits, from diversification and professional management in mutual funds to the potential for income through REITs. Understanding these options can help investors make more informed decisions that align with their financial goals and risk tolerance.
Alternatives to SME IPOs
1. Mutual Funds: Mutual funds are safer and generally more accessible compared to SME IPOs. India’s mutual fund industry has been in spectacular growth, with assets under management at Rs.46.37 trillion as of March 2023, up 21% from the previous year. Large-cap and multi-cap equity mutual funds have continued to deliver about 12-15% returns annually over the last decade. There are also various options like debt and thematic funds available in the mutual fund making it a great option for the different risk appetites.
2. ETFs (Exchange-Traded Funds): ETFs or passive funds, offer a low-cost way to invest by tracking major indices such as the Nifty 50 or Sensex. Assets under management by ETFs have grown to Rs.7 trillion as of 2023. This may attract cost-conscious investors who will be attracted to these investment vehicles because of their low expense ratios. Some offer active management and come with higher fees, but most are relatively cheap and an affordable way to get market exposure. While ETFs have to be constantly rebalanced to adapt to market situations, on a broad scale, they are more stable investments for wealth creation than what is commonly experienced with SME IPOs.
3. REITs/Real Estate Investment Trusts: REITs are also quite promising. Since its inception in India in 2019, REITs have grown robustly. For instance, Embassy Office Parks REIT has given returns of more than 20% since listing. The greatest advantage of REITs lies in their mandatory distribution of 90% of net cash flow to the unitholders which also ensures stability in the income distribution. This feature of an investment is more attractive in India, as a direct investment in real estate can offer one only 2-3% through rentals. In the long run, REITs can distribute dividends and capital appreciation.
4. Real Estate: As of now, Indian real estate is an extremely important investment avenue. It is an industry that has accounted for a value of $200 billion in 2021 and is most likely to reach $1 trillion by 2030. Residential sales have gained huge momentum since the pandemic, and it is reported that major cities have seen a 71% year-on-year growth in 2021. Precisely, Hyderabad and Bengaluru cities are reporting tremendous value growth, especially in premium locations. It also has attractive rental yields, especially in the technology hubs where strong demand is expected to drive the market.
5. Investment in Start-Ups: For those searching for more vibrant, exciting views of the risks and returns, there are startup investments. The Indian startup scene has been thriving well in 2022, with new unicorns sprouting in 2023. Platforms such as LetsVenture, for instance, enable even investors to invest in high-growth sectors like fintech and health tech with as low as Rs.5 lakh. Such investments typically come with higher risks and return potential which is only ideal for the experienced investor who understands the startup landscape.
Conclusion
Five alternatives to SME IPOs are mutually exclusive funds, ETFs, REITs, real estate, and startup investments. All of them offer various options for diversified portfolios or wealth growth. Each alternative has its respective rewards and risks; investors can choose the one that suits their financial goals as well as risk tolerance.
