NAGINDAS KHANDWALA COLLEGE

OF COMMERCE, ARTS & MANAGEMENT STUDIES

MALAD WEST, MUMBAI - 400064

PROJECT ON:

INVESTMENT ALTERNATIVES AVAILABLE FOR INDIVIDUALS OF INDIA

IN PARTIAL FULFILLMENT OF

T.Y. BCOM (FINANCIAL MARKET)

SEMESTER VI

PRESENTED BY:

DHWANI KANTILAL SATRA

PROJECT GUIDE:

Ms. MEHA MANDAWEWALA

UNIVERSITY OF MUMBAI

ACADEMIC YEAR 2018-2019

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 EXECUTIVE SUMMARY

This project has given an overview about the structure and role of alternative
investments
in financial markets. The project covers types of and objectives of alternative
investment. The project shows the emergence of alternative investments in India from
its beginning to its current scenario.

Because structures are a descriptive and definitional component of alternative

investments, they are a crucial theme to our analysis of asset classes. Structures
denote a related set of important aspects that identify investments and distinguish
them from other investments.

There is a big difference between traditional investment and alternative investment,

this project helps to understand the difference between the both with the help of
distinguish.

This project has also covered several topics like various investments alternatives
available to an Indian investor, risks in alternative investment, objectives of
alternative investment, and benefits of alternative investment.

The project covers Portfolio Management which includes due diligence checkpoints,
issues for private wealth clients and alternative investment benchmarks.

There are various return characteristics of alternative investment like diversification,

liquidity, inefficiency, non-normality.
In this project there are 5 case studies on the alternative investment and they are:
 Retirement Savings
 Designing a liability Driven Investment (LDI) Strategy
 Implementing an alternative beta strategy
 Building a global real assets portfolio
 Managing Complexity

At the end of the project has been given an overview about the current scenario of
alternative investments along with the conclusion of the project.

There are few recent articles on alternative investments and these articles are:

 How Tech is Changing Alternative Investments

 Factor Investing and Risk Allocation: From Traditional to Alternative Risk
Premia Harvesting
 A Platform to Democratize Alternative Investments
 As Yields Fall, Investors Turn to Alternative Assets
 Alternative Investments: Surfing the Market

The project end with the bibliography which helps us to know the source of all the
information.
 INDEX

Chapter No. Topic Pg. No.

1 Executive summary 1

Research and methodology

2 Introduction to Alternative Investment for Individuals in India: 5

2.1 Meaning and definition

2.2 Objectives of alternative investment

2.3 Benefits of alternative investment

2.4 Traditional vs. Alternative

2.5 Alternative investment by exclusion

2.6 Alternative investment by inclusion

3 Literature Review 18

Structure of Alternative Investment:

3.1 Structure among alternatives

3.2 Investment distinguish by written characteristics

3.3 Investment distinguish by methods of analysis

3.4 Risk in alternative investment

3.5 Portfolio Management

3.6 SWOT analysis of alternative investment

4 Data analysis, Interpretation and presentation 55

5 Findings and Suggestions 69

Conclusion

Bibliography
 CHAPTER 1-INTRODUCTION TO ALTERNATIVE INVESTMENT
AVAILABLE IN FINANCIAL MARKET

1.1 MEANING AND DEFINATION

 An alternative investment is an investment in asset classes other than stocks,
bonds, and cash.
 The term is a relatively loose one and includes tangible assets such as precious
metals, art, wine antiques, coins, or stamps and some financial assets such as real
estate, commodities, private equity, distressed securities, hedge funds, carbon
credits, venture capital, film production, financial derivatives, and crypto
currencies
 Investments in real estate and forestry are also often termed alternative despite
the ancient use of such real assets to enhance and preserve wealth. In the last
century, fancy color diamonds have emerged as an alternative investment class as
well. Alternative investments are to be contrasted with traditional investments.
 There are a large variety of investment institutions making investment in several
types of assets. New varieties like angel funds emerges with time. Existing
regulations may not cover them. Hence these institutions that are different from
the traditional investment institutions are categorized as Alternative Investment
Funds. The necessity for classifying these institutions is from the view point of
regulation. Every financial entity should be well regulated for the overall safety
of the financial system as well as growth of the economy.
 The name Alternative is vital as it shows the entities specified as AIFs are not like
the traditional institutions mutual funds, pension funds, insurance companies etc.
 Anything alternate to traditional form of investments can be categorized as
alternative investments.
 The estimated global pool of assets in alternative investment (Al) under managing
is over $10 trillion, said Jo Murphy, Managing Director- Asia Pacific, CAIA
Association. In an exclusive interview with ETMarkets" Kshitij Anand, Murphy
said cumulative funds raised in India as of June 2016 was Rs 26,003 crore- a
five-fold increase over 2014.

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Specifically, for India, there are three types of AlFs -category I, category II and
category III, established in 2012:

Category 1- includes start-ups, early stage ventures, SMEs or infrastructure and are
closed ended.
Category II: are typically PE/ debt Funds with no specific incentives of concessions.
Does not employ leverage or borrowing and are closed ended funds.
Category III- includes hedge funds - diverse / complex trading strategies and may
employ leverage (through investment in listed or unlisted derivatives). Include both
open and closed ended funds

1.2 OBJECTIVES OF ALTERNATIVE INVESTMENTS

Alternative investment managers have n greater range of strategies available, but what
does that ultimately mean for the investor? Why have colleges, institutions, and high
net worth individuals chosen to allocate assets to these strategies? The basic answer is
that adding alternatives to a portfolio of traditional assets can help lower risk while
potentially enhancing returns. More specifically, alternative investments offer the
following::

 Increased Diversification
 Lower Correlations
 Lower Portfolio Volatility
 Portfolio Performance
 Access to Talent

 Increased Diversification

 Although farmers, parents, and even investors have long understood the warning
"Don't put all your eggs in one basket," Harry Markowitz actually won the Nobel
Prize for his work that quantified and explained this adage as it relates to
portfolio management. Markowitz showed that combining assets which do not
exhibit a high correlation to one another gives investors an opportunity to reduce
risk without sacrificing return.

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 The measurement of a diversified portfolio's risk is not simply the weighted
average of the individual volatility measurements. Instead, a diversified portfolio
exhibits less risk than the weighted average of its underlying positions' individual
risks. In Pioneering Portfolio Management, David Swensen, CIO of Yale
University's endowment, summarizes Markowitz's Nobel Prize-winning theory
"By combining assets that vary in response to forces that drive markets, more
efficient portfolios provide higher returns than less well diversified portfolios.
Conversely, through appropriate diversification, a given level of returns can be
achieved at lower risk."2 For years, investors have attempted to create diversified
portfolios by combining stocks with bonds and cash. Investors have sought
further diversification by allocating capital to domestic and international stocks,
growth and value stocks, and stocks of different capitalization ranges and
different sectors. Unfortunately, these efforts do not combine assets that move
independently of one another-one of Markowitz's requirements in constructing a
diversified portfolio. Investors with capital allocated to various regions, sectors
and capitalization ranges are not necessarily getting the efficiency associated with
truly diversified portfolio.

 Lower Correlations

 In order for diversification to realize its benefits, a portfolio's underlying asset

classes must behave differently in varying market conditions. The measurement
of this historical relationship, whether different or similar in behavior, is called
correlation. A correlation coefficient of 1.0 indicates that two investments behave
exactly the same-moving in the same direction with the same amplitude-in
varying market conditions. A-1.0 correlation coefficient indicates that two assets
will move inversely in lockstep. Adding alternative investments to a portfolio can
help increase diversification because, for the most part, alternative strategies are
not highly correlated to one another or to traditional asset classes.

3
 Many alternative investment strategies are designed to help reduce the role of
overall market direction in determining return. These strategies isolate a manager
investment thesis and talent, decreasing the likelihood of significant correlation to
general market indices such as the S&P 500 Index. Describing the ability o
alternative investments to produce returns regardless of market direction, a study
by BARRA Rogers-Casey concluded, "While traditional investments derive the
majority of investment return from the capital markets, many hedge fund
strategies are less affected by the direction of underlying capital markets.

 Lower Portfolio Volatility

 By adding alternative investments to the traditional portfolio, an investor can

reduce portfolio volatility and improve the opportunity to experience increased
Returns over the long term. Beyond their ability to reduce risk as portfolio
diversifiers, many alternative strategies exhibit very low volatility when
considered in isolation.

 Portfolio Performance

 For years, endowments have enjoyed the benefits of lower volatility in their
portfolios. How does reduced volatility help investors? Reducing the frequency
and severity of losses in a portfolio creates an environment in which the portfolio
may compound returns more efficiently. When an investor experiences negative
returns in a volatile portfolio, subsequent monthly returns must first "catch up"
for those prior losses before the investor can begin to enjoy growth on his initial
investment. When an investor experiences consistently positive returns in a low
volatility portfolio, each month's returns compound upon prior positive returns to
offer growth and help preserve capital. The true power of compounding has its
greatest impact when negative months are eliminated or their severity is
significantly reduced. How valuable is lower portfolio volatility to an investor? A
S1,000 investment in the S&P 500. Index from 1950 through 2010 would have
produced an average return of 8.70% with a standard deviation of 16.80%. At the
end of that period, the SI ,000 investment would have grown to $73,152. (That
actually sounds fairly enticing.).

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 Access to Talent
Investment professionals gravitate to this sector in large part because compensation
based on ability as demonstrated by returns, not merely the firm's ability to gather
assets under management. Sometimes referred to as the "brain drain," talented
investment managers leave traditional equity and fixed income funds for hedge funds,
private equity funds, or other types of alternative investment funds where they can
potentially benefit from:
 Incentive compensation
 Greater breadth of investment instruments and strategies
 Privacy of investment ideas associated with less transparency
 The ability to capitalize on the benefits of taking less liquid positions
Many would consider incentive fees the most significant reason that these talented
professionals are leaving traditional investment management shops. However, the
manager's ability to generate a return to earn an incentive fee is, at least partially,
dependent upon the other three points. When a highly motivated manager can
combine his expertise with the freedom to utilize, he is more likely to generate the
returns that investors expect. Because of the aligned interests associated with
incentive fees, both sides are happy.

1.3 BENEFITS OF ALTERNATIVE INVESTMENT

Alternative investments often require a certain level of patience as many of these

assets lack the liquidity inherent in the public markets. However, there are several
benefits associated with taking a long-term approach by investing in illiquid
alternatives. Pretty much anything that does not fall within the definition of traditional
stocks and bonds can be loosely categorized as alternative investments. The more
common illiquid alternative investments many are familiar with are venture capital,
private equity, hedge funds and fixed-income products investments have been on the
rise since 2005 as more investors and financial advisers have begun to explore
investment options outside of traditional stocks and bonds. A McKinney & Company
report shows that the global AUM of alternative investments has risen by 119% over
last 8 years from 2005 to 2013.

5
Here are three benefits of investing in liquid alternative investments:

(1) Mitigate Market Volatility:

Alternative assets often cushion market volatility present in more traditional
investments like those found in the public markets. This is accomplished by investing
in asset classes like private equity that feature low correlation to the markets.
Investors all too often have the tendency to react hastily when markets turn sour as
they generally lack the ability to fully understand the underlying causes of this
volatility. The long lock-up periods of alternative investments reduce preemptive
reactions to risk and create a natural hedge against the myopic knee-jerk reactions of
the average investor. Fear-based selling and behavioral investing are tempered by the
illiquidity present in many alternative investments.

(2) Lower Transaction Costs

Short-term investing often requires high amounts of turnover, leading to the creation
of high transaction costs. While short-term investing sometimes yield high returns,
many of these benefits are offset by the costs associated with maintaining and
re-balancing a portfolio. It is often difficult to create a model to generate an efficient
portfolio for maximized returns while limiting high transaction costs.
Alternative investments often have higher upfront fees compared to other traditional
investments but this is ameliorated by the fact that these investments are typically not
subject to high turnover and ongoing maintenance and transaction costs.

(3) Tax Benefits

While not unique to alternative investments, long-term investments (longer than 12
months) have certain tax benefits. These longer-term investments are subject to
long-tern capital gains tax which is lower than the taxes incurred from short-term
investments. Additionally, capital gains tax is generally only incurred upon realized
gains. As a result of the longer holding periods of illiquid alternatives, these
investments may hedge against short-term capital gains taxes. Consult with your
financial consultant and/or tax adviser in order to determine which investments may
be best suited for your portfolio and long-term investment strategy.

6
1.4 TRADITIONAL VS ALTERNATIVE
If you've both managed to set aside a little cheddar recently, you might be wondering
how best to invest it for your twilight years. Should you go the traditional investment
route stocks, bonds or cash? Or should you be adventurous and go for alternative
investments -hedge funds, managed futures, real estate investment trusts, or even
commodities? There are clear distinctions between each camp, and both have their
negatives and positives pretty much evenly matched The decision will depend
ultimately on how much money you have to invest, how much liquidity you require
and how comfortable you are with less regulatory oversight of your investments.
 Minimum Investments and Fees
One significant distinction between traditional investments and their alternative
counterparts is the minimum investment requirement and the fee structure. Traditional
investments, such as mutual funds, often require minimum investments of roughly
$2,000, and exchange-traded funds typically will require less than this. Alternative
investments such as hedge funds and managed funds however often require minimum
investments between $500,000 and Si million, plus management fees of 1 to 2 percent
of the fund's assets and performance fees of 20 percent of the fund's profit.
 Liquidity
Liquidity is another key distinction between traditional investments and alternative
investments Investors can easily redeem their assets from traditional investments such
as mutual funds; however, in the case of alternative investments, many are illiquid
investments. For example, the shares in a real estate investment trust do not trade on
the market and will not be available if you need to liquidate an asset to raise some
quick cash.
 Return
Alternative investments remain distinct from traditional investments in that they tend
to deliver higher returns. In addition, alternative investments often demonstrate
positive returns even during tough markets. According to Kate Stalter, a contributing
editor of Forbes Investing, alternative investments such as managed futures and
commodities delivered positive returns even during the bear market of 2008, whereas
most traditional investments suffered.

7
 Regulation
Traditional investments also differ from alternative investments in their level of
regulation. Public companies issuing stocks and other traditional forms of investments
are registered traditional and carefully regulated by the Securities and Exchange
Commission, and their financial statements are independently audited. Alternative
investments such as hedge funds on the other hand have little regulatory oversight and
investors in these types of funds can be more vulnerable to fraud.

1.5 ALTERNATIVE INVESTMENT BY EXCLUSION

Alternative investments are sometimes viewed as including any investment that is not
simply a long position in traditional investments. Typically, traditional investments
include publicly traded equities, fixed-income securities, and cash. For example, if a
particular investment (such as private equity) is not commonly covered as equity in
books on investing, then many people would view it as an alternative investment. The
alternative-investments-by-exclusion definition is overly broad for the purposes of the
CAIA curriculum. First, the term investment covers a very broad spectrum. A good
definition of an investment is that it is deferred consumption. Any net outlay of cash
made with the prospect of receiving future benefits might be considered an investment.
So investments can range from planting a tree to buying stocks to acquiring a college
education. As such, a more accurate definition of alternative investments requires
more specificity than simply that of being nontraditional. This book and the overall
CAIA curriculum are focused on institutional-quality alternative investments. An
institutional-quality investment is the type of investment that financial institutions
such as pension funds or endowments might include in their holdings because they are
expected to deliver reasonable returns at an acceptable level of risk. For example, a
pension fund would consider holding the publicly traded equities of a major
corporation but may be reluctant to hold collectibles such as baseball cards or stamps.
Also, investments in very small and very speculative projects are typically viewed as
being inappropriate for such an institution due to its responsibility to select
investments that offer suitable risk levels and financial return prospects for its clients.
Not every financial institution, or instances even every type of financial institution,
invests in alternative investments. Some financial institutions, such as some brokerage
firms, are not focused on making long.term investments; rather, they hold securities to
provide services to their clients.

8
Other financial institutions, such as deposit-taking institutions like banks (especially
smaller banks) might invest in only traditional investments because of government
regulations or because of lack of expertise. Of course, institutional-quality alternative
investments are also held by entities other than financial institutions.

1.6 ALTERNATIVE INVESTMENT BY INCLUSION

Another method of identifying alternative investments is to define explicitly which
investments are considered to be alternative. In this book, we classify four types of
alternative investments:
1. Real assets (including natural resources, commodities, real estate, infrastructure,
and intellectual property)
2. Hedge funds (including managed futures)
3. Private equity (including mezzanine and distressed debt)
4. Structured products (including credit derivatives)

The following sections provide brief introductions to the four categories:

1.6.1 Real Assets
Real assets are investments in which the underlying assets involve direct ownership of
non financial assets rather than ownership through financial assets, such as the
securities of manufacturing or service enterprises. Real assets tend to represent more
direct claims on consumption than create value in a company, such as intangible
assets and managerial skill. So while a corporation such as Google holds real estate
and other real assets, the value to its common stock is highly reliant on perceptions of
the ability of the firm's management to oversee creation and sales of its goods and
services. An aspect that distinguishes types of real assets is the extent to which the
ownership of the real assets involves operational aspects, such as day-to-day
management decisions that have substantial impacts on the performance of the assets.
For example, in many instances, direct ownership of oil reserves or stockpiles of
copper involve What Is an Alternative do common stocks, and they tend to do so with
less reliance on factors that her real assets, the value to its common stock is highly
Investment? 5 Real Assets 30% Hedge Funds 38% Structured Products 3% Private
Equity 29% .

9
Natural resources focus on direct ownership of real assets that have received little or
no alteration by humans, such as mineral and energy rights or reserve. Commodities
are differentiated from natural resources by their emphasis on having been extracted
or produced.Commodities are homogeneous goods available in large quantities, such
as energy products, and building materials. Most of the investments covered in the
such as mineral and energy rights or reserves. Commodities are agricultural products,
metals commodities section of the CAIA curriculum involve futures contracts, so
understanding futures contracts is an important part of understanding commodities.
Futures contracts are regulated distinctly and have well-defined economic properties.
For example, the analysis of futures contracts typically emphasizes notional amounts
rather than the amount of money posted as collateral products exposure can be
obtained through futures contracts, physical commodities, companies, and
exchange-traded funds. Actively traded futures contracts on commodities are
discussed in Part 3 on hedge funds and managed futures. Some real assets are
operationally focused. For the purposes of the CATA curriculum, operationally
focused real assets include real estate, land, infrastructure, and intellectual property.
The performance of these types of real assets is substantially affected by the skill and
success of regular and relatively frequent managerial decision-making. Traditional
common stocks are typically even more highly operationally focused. Real estate
focuses on land and improvements that are permanently fixed, like buildings. Real
estate was a significant asset class long before stocks and bonds became important.
Prior to the industrial age, land was the single most valuable asset class. Only a few
decades ago, real estate was the most valuable asset of most individuals, because
ownership of a primary residence was more common than ownership of financial
investments. Land comprises a or margin to acquire positions. Commodities as an
investment class refer to investment the somewhat passive (i.e., buy-and-hold)
exposure to commodity prices. This natural resource variety of forms, including
undeveloped land, timberland, and farmland. Although undeveloped land might
appear to belong under the category of natural resources rather than operationally
focused real assets, the option to develop land often requires substantial and ongoing
decision-making. Timberland includes both the land and the timber of forests
typically used in the forest products industry. While the underlying land is timberland
requires some level of ongoing management. Finally, farmland cultivated for row
crops (e.g., vegetables and grains) and permanent crops (e.g, orchards and vineyards)

10
Farmland necessitates substantial operations and managerial decisions. Infrastructure
investments are claims on the income of toll roads, regulated utilities, ports, airports,
and other real assets that are traditionally held and controlled by the public sector (i.e.,
various levels of government). Investable infrastructure opportunities include
securities generated by the privatization of existing infrastructure or by the private
creation of new infrastructure via private financing. Finally, while some descriptions
of real assets limit the category to tangible assets, we define real assets to include
intangible assets, such as intellectual property (e.g, patents,copyrights, and trademarks,
as well as music, Im, and publishing royalties). The opposite of a real asset is a
financial asset, not an intangible asset. A financial asset is not a real claim on cash
Lows, such as a share of stock or a bond. Intangible assets, directly facilitate
production, thereby creating increased value. It can be argued that intangible assets
represent a very large and rapidly increasing role in the wealth of society.
1.6.2 Hedge Funds
Hedge funds represent perhaps the most visible category of alternative investments.
While hedge funds are often associated with particular fee structures or levels of risk
taking, we define a hedge fund as a privately organized investment vehicle that uses
its less regulated nature to generate investment opportunities that are substantially
distinct from those offered by traditional investment vehicles, which are subject to
regulations such as those restricting their use of derivatives and leverage. Hedge funds
represent a wide-ranging set of vehicles that are differentiated primarily by the
investment strategy or strategies implemented.
1.6.3 Private Equity
The term private equity is used in the CAIA curriculum to include both equity and
debt positions that, among other things, are not publicly traded. In most cases, the
debt positions contain so much risk from cash Low uncertainty that their short-term
return behavior is similar to that of equity positions. In other words, the value of the
debt positions in a highly leveraged company discussed within the category of What
Is an Alternative Investment? 7 private equity, behaves like that of the equity
positions in the same firm, especially in the short run. Private equity investments
emerge primarily from funding new ventures, known as venture capital; from the
equity of leveraged buyouts of existing businesses; from mezzanine financing of
leveraged buyouts or other ventures; and from distressed debt resulting previously
healthy arms.

11
Venture capital refers to support via equity financing to start-up companies that do not
have a sufficient size, track record, or desire to attract capital from additional sources,
such as public capital markets or lending institutions. Venture capitalists fund these
high-risk, illiquid, and unproven ideas by purchasing senior equity stakes while the
start-up companies are still privately held. The ultimate goal is to generate large
profits primarily through the business success of the companies and their development
into enterprises capable of attracting public investment capital (typically through an
initial public offering, or IPO) or via their sale to other companies. In the context of
investment management, venture capital is sometimes treated as a separate asset class
from other types of private equity. Leveraged buyouts (LBOs) refer to those
transactions in which the equity of a publicly traded company is purchased using a
small amount of investor capital and a large amount of borrowed funds in order to
take the firm private. The borrowed funds are secured by the assets or cash Lows of
the large company. The goals can include exploiting tax advantages of debt financing,
improving the operating efficiency and the profitability of the company, and
ultimately taking the company public again (i e, making an IPO of its new equity),
Management buyouts and management buy ins are types of LBOs with specific
managerial changes. Mezzanine debt derives its name from its position in the capital
structure of a firm: between the ceiling of senior secured debt and the floor of equity.
Mezzanine debt refers to a spectrum of risky claims, including preferred stock,
convertible debt, and debt that includes equity kickers (i.e., options that allow
investors to benefit from any upside success in the underlying business, also called
hybrid securities). Distressed debt refers to the debt of companies that have led or are
likely to le in the near future. For bankruptcy protection. Even though these securities
are fixed-income securities, distressed debt is included in our discussion of private
equity because the future cash Lows of the securities are highly risky and highly
dependent on the financial success of the distressed companies, and thus share many
similarities with common stock. Private equity firms investing in distressed debt tend
to take longer-term ownership positions in the companies after converting all or some
portion of their debt position to equity. Some hedge funds also invest in distressed
debt, but they tend to do so with a shorter-term trading orientation.

12
1.6.4 Structured Products
Structured products are instruments created to exhibit particular return, risk, taxation,
or other attributes. These instruments generate unique cash Lows as a result of
partitioning the cash flows from a traditional investment or linking the returns of the
structured product to one or more market values. The simplest and most common ex
ample of a structured product is the creation of debt securities and equity securities in
a traditional corporation. The cash Low corporation's assets are structured into a
lower-risk fixed cash Low stream (bonds) and risk residual cash Low stream (stock).
The structuring of the financing creates option-like characteristics for the resulting
securities. Collateralized debt obligations(CDOs) and similar instruments are among
the best-known types of structured partition with varied levels of seniority (the
tranches), Credit derivatives, another popular type of structured product, facilitate the
transfer of credit risk. Most commonly, credit derivatives allow an entity (the credit
protection buyer) to transfer some or all of a credit risk associated with a specific
exposure to the party on the other side of the derivative (the credit protection seller).
The credit protection seller might be diversifying into the given credit risk,
speculating on the given credit risk, or hedging a preexisting credit exposure.
Historically, the term structured products has referred to a very broad spectrum of
products, including CDOs and credit derivatives. In recent decades, however, the term
is being used to describe a narrower set of financially engineered products. These
products are issued largely with the intention of meeting the preferences of investors,
such as providing precisely crafted exposures to the returns of an index or a security.
For example, a major bank may issue a product designed to offer downside risk
protection to investors while also offering the potential for the investor to receive a
portion of the upside performance in an index. Part 5 discusses these specially
designed structured products along with more generic structured products, including
credit derivatives and CDOs.
1.6.5 Limits on the Categorizations:
These four categories of alternative investments are the focus of the CAIA curriculum
categorization helps us understand the spectrum of alternative investments, the
various alternative investment categories may overlap. For example, some hedge fund
portfolios may contain substantial private equity or structured product exposures and
may even substantially alternate the focus of their holdings through time.

13
 Chapter 2: RESEARCH METHODOLOGY

The research methodology begins with research questions raised and followed by
formulation of hypothesis and key variables are also discussed. This chapter also
discovers the research design adopted which includes sampling design, Data
Collection procedure, survey instruments, and concludes with the data analysis tools
and techniques which will be applied in analyzing the primary data collected.
A Hypothesis is an anticipated statement which can be evaluated and testified by
scientific tools and techniques. It is a yardstick to move gradually into the testing and
evaluation of data gathered.
There are two methods of collecting data for research and project work
They are:
PRIMARY DATA:
Primary data is collected through a questionnaire & collecting answers from banks to
Understand the strategies used by the banks to manage the risk of investor's. The
questionnaire is aimed at gathering firsthand knowledge of banker's point of view.
Random sampling method is used for collection of data and necessary information for
which 10 banks have been taken for study.

SECONDARY DATA
Secondary sources are used to collect the required data from various:
 Websites
 Journals and Magazines
 Books related to management of risk in banks.

The data collected for this project is a secondary data which means the information is
collected from different sources like:
 Various books related to alternative investments
 Various websites
 Newspapers and articles related to alternative investment
 Information from presentation related to alternative investment

14
Objective of Research
An individual investor with his small savings selects the investments options, in
which he sees the maximum return in short run. But at the same time, he cannot
understand the disguised risk factor which is also a part of any investment. The study
focuses on certain objectives:
 To study the behavioral investment decision of retail individual investors in
equity market in Uttar Pradesh.
 To conduct a detailed analytical study of stock market investment instruments
available.
 To study the environmental framework of investment in stock market created for
retail individual investor.
 To study the Growth of Indian Stock Market.
 To analyze the investor’s perceptions towards risk and return while investing in
stock market.

Research Problem:
 The small Individual investors’ / household investor’s participation in aggregate
stock market investment or equity market investment is less than 1% in India and
Growing at very slow or Stagnate rate. The total number of investors who traded
at least once during last 10 years period is 2.5 million, or 0.22 percent of the
population.
 So the research problem is “Why the individual’s Participation is very low in
stock or equity market investments.” The Statement of the problem under study is
to analyze the investment pattern of investors and the availability of option for
stock market or equity based investment.
 The study would try to reveal that how an average individual investor’s
investment behaviour gets influenced and determined and what environmental &
market factors influences his investment pattern, attitude, approach.
 During study of the literature, it is revealed that despite of several financial
options available to him, why the small individual investor lacks to invest in
equity market and tries to direct its capital into risk free financial instruments or
investments.

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  The study will also try to disclose the role of risk and return involved in
selection of optimal investment portfolio.
 Research Problem concentrate on finding out factors that are responsible for
small investor’s low participation and the studying of the investment criteria and
pattern followed by small individual investors to identify the equity investment
options.
 A hypothesis is used in an experiment to define the association between two
variables. The purpose of a hypothesis is to find the response to a question: a
formalized hypothesis will force us to think about what results, we should look
for in an experiment.

Sources of Hypothesis

What is the source of hypotheses? They may be derived directly from the statement of
the problem; they may be based on the research literature, or in some cases, such as in
ethnographic research, they may (at least in part) be generated from data collection
and analysis. The various sources of hypotheses may be:

 Review of similar studies in the area or of the studies on similar problems;

 Examination of data and records, if available, concerning the problem for
possible trends, peculiarities and other clues;
 Discussions with colleagues and experts about the problem, its origin and the
objectives in seeking a solution.
 Intuition is often considered a reasonable source of research hypotheses --
especially when it is the intuition of a well-known researcher or theoretician who
“knows what is known”
 Prior empirical research findings are perhaps the most common source of new
research hypotheses, especially when carefully combined using rational
induction.

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Survey & Data Collection Method:
 A pilot study conducted and responses of 20 respondents studied to check the
relevance of questionnaire prepared. 100 brokers registered with SEBI from each
city Kanpur and Lucknow was selected.
 We randomly selected two respondents from each broker in aggregate of 400
respondents for our study and circulated them questionnaire. The total responses
received after various efforts done by the researcher were 306 only. After data
trimming the sample size of 300 is selected for study.
 The secondary data type is used in the form of literature of research work to
analyse the past and present research work and draw the relative essence to enrich
the research.
 The source of secondary data collection is news papers articles, stock market
reports, RBI reports, online Library and Govt. Reports etc.

Data Analysis Tools and Techniques:

 The data (responses) collected through the descriptive study is quantified,
arranged & tabulated in SPSS 17.0 for statistical analysis.
 The structured questionnaire is used to collect the responses. The questionnaire
frames the questions on 2 point Likert scale and tries to draw the exact responses
that can foster the analysis work.
 Before using SPSS 17.0, the collected responses are assigned the numeral values
starting from 1 to 5. Then this tabulated data is processed to obtain the results
through analysis.
 The techniques like Non-Parametric tests (Chi-square) are used to test the
hypothesis. The frequency distribution in the form of tables displaying frequency
and percentage and cumulative frequency is used to study the data and analyze it.
 For better understanding and quick extraction of relative results, the pie chart is
found suitable to display the data analysis results.

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 CHAPTER 4- DATA ANALYSIS, INTERPRETATION AND
PRESENTATION

Here is the survey results for various alternative investments what an individual does
and reviews of people with their perspective.

From the above seen data we can interpret that the highest percentage of age group
that have invested is among 15-25years. As this group includes major of youth and
nowadays the upcoming youth have started studying more about investment as to earn
more. Also we can see that the lowest group of investment is among 60 years and
above. Here, lack of knowledge can be the reason of not investing. Also the age group
of 25-40years have shown more interest into investment. May be we can say that they
have more money to invest and also proper guidance is available.

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From the above seen data shown we can see that the maximum investment is from the
female sector. Investment from male sector is low compared to female. The
percentage of female sector is 52.9% whereas from male sector it is 47.1%. The
reason of female investing more can be as it is more easy way to earn compared to
corporate jobs. Males not investing much may be because lack of awareness and also
lack of interest.

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 OCCUPATION:

From the above seen data, out of 100 responses we can see that maximum investment
is from business sector i.e 37% and lowest is from retired section. Participation from
private sector is also comparatively good i.e 35% and from government sector it is
26%. People doing private jobs and business have maximum knowledge about the
investment plans and schemes. Also the financial advisers are helpful. Knowledge can
b taken from newspaper, friends, family, etc. As seen retired sector have the lowest
percentage of investment participation due to lack of knowledge and awareness.

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 ANNUAL INCOME:

From the above seen data we can interpret that the highest percentage of people from
the survey has the annual income of 1.5-3lakhs I.e 50%. There is only 19% of people
out of 100 being attending the survey have their annual income of 3lakh and above.
Between both of these comes the people have their annual income of 1-1.5lakhs I.e
31%.

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 PERCENTAGE OF ANNUAL INCOME SAVED TO INVEST:

From the above seen data we can see that 40.2% of the people save up to 5 to 10% of
their annual income for investment. 41.2% of people save up to 10 to 20% of their
annual income for investment. People investing more than 20% from their annual
income is comparatively less I.e 18.6% as expenses can be more of rest of the people.
We can interpret that people are getting more aware from before and have started
investing after knowing the advantages of returns, less risk, maturity period, etc.

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 FEATURES TO BE CONSIDERED BEFORE INVESTING:

Before investing into any particular investment option people majorly look for less
locking period according to the survey as there is risk of loosing of money. Less
investing with less locking period helps people to satisfy themselves of not loosing
hope. Risk is the main factor of people not investing in any option. People more often
feel there is lot of risk to invest due to late returns. Other factor that is majorly taken
into consideration is returns and minimum amount of investment. Getting more
returns influences people to invest more.

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 PERIOD OF INVESTMENT OF FUNDS:

From the above seen data, we can come to know that the most of the people invest for
less period. There are only 10.8% of people investing for more than 4 years. As we
can say the mentality of the people that locking money for more time can be riskier.
Majority of the people invest for 1-2years or 2-3years according to the survey.
Investment plans up to 3 years can convince people for investing rapidly and more
amount of money. Getting greater returns is the major factor people look upon and
minimum investment amount. There are also people not believing in investment at all
and there are also people that believe investment is the best option to earn with
knowledge about the same. It depends upon person to person and the perspective they
believe on.

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 INVESTMENT PREFERENCE:

From the above seen data we can interpret that out of 102 responses majority of
people prefer to invest in fixed deposits. Also share/commodity market, mutual funds,
ULIP plans and real estate have a good response as well. People majorly try to invest
in best convincing plans to invest in. Fixed deposits gives good returns and also the
main thing is risk is less compared to other options. Mutual funds are considered to be
safe to invest in. Mutual funds take more locking period but gives good returns.
Similarly, real estate have more risk but better returns. People also take help of their
financial advisers to help them choosing better option.

MONITORING OF INVESTMENT:

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According to the survey, there are less people to monitor their investment daily.
54.9% of investors monitor their investment monthly. Reason can be that they have
being investing through brokers and they do the needful monitor daily. Also It can be
that less amount will be invested so there would be no need to get into in daily. There
are also people monitoring their investment occasionally. It depends on person to
person or investor to investor to how seriously it can take into consideration. There
are only 16.7% of investors monitoring their investments daily.

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 SOURCE OF INVESTMENT ADVISE:

There are many options through which people get advice for investment. Majorly
according to the survey, 44% it is internet or social networking sites through which
people get influenced for investment. There are also financial advisers and family or
friends with 34% of participation to influence people for investment. Newspaper and
financial planners with 19% and 18% respectively influence for investment. Today
generation is more on internet than on newspaper. It is the major reason why internet
has the major percentage if influencing people for investment. Proper knowledge and
proper information can lead to more percentage of investment.

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 OBJECTIVES OF SAVINGS:

From the above seen data, we can interpret that the reasons for investment for all
people is different. It depends upon need and differ from person to person. According
to the survey, majorly the investment purpose is home purchases. Children education ,
children marriage, health-care are also the important reasons for investment. People
think of future to save money or generate money for the following purposes.
Retirement is also the reason for people to invest as they think it will be beneficial
once they get retire.

PURPOSE BEHIND INVESTMENT:

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From the above seen data, we can interpret that the major purpose behind investment
is to earn more returns. There are also reasons like wealth creation, tax savings, future
expenses, etc. Future expenses may include children marriage, children education,
retirement,etc. People are more involved for future thinking. Tax savings is also
important reason for which investment is a better solution.

REQUIREMENT OF MINIMUM AMOUNT OF INVESTMENT:

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According to the survey, fixed deposits is the option which don’t require minimum
investment amount. There are also other options like mutual funds, real estate, etc.
After knowing about the different available options to invest, people usually select the
one which is comparatively convenient and gives good returns with less risk. Real
estate have been now into great deal and with good expectations of future returns.
People usually invest in real estate to earn good returns at the time when the price rise.
Share/commodity market usually requires huge investment amount also it give better
returns at the same time.

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 ADVANTAGES OF INVESTMENT OPTIONS:

From the above seen data, we can see the survey of advantages of the options of
investment. The major advantages are good returns, locking period, profit, less risk
and easy to invest. According to the survey, mutual funds have a good advantage of
high returns and better profits. Share/commodity market have an advantage of locking
period and profit also risk is less compared to other options. Real estate has the
advantage of good profits and also less risk. According to the different options there
are also different advantages. Its suitable according to needs of the investor.

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69
 CHAPTER 5 - FINDINGS AND SUGGESTIONS

5.1 FINDINGS

1) The introduction of alternative investment is an investment class other than stocks,

bonds and cash.
2) Investments in real estate and forestry are also often termed alternative despite the
ancient use of such real assets to enhance and preserve wealth.
3) In the last century, fancy color diamonds have emerged as an alternative
investment class as well. Alternative investments are to be contrasted with traditional
investments.
4) There are a large variety of investment institutions making investment in several
types of assets. New varieties like angel funds emerges with time. Existing regulations
may not cover them. Hence these institutions that are different from the traditional
investment institutions are categorized as Alternative Investment Funds.
5)The necessity for classifying these institutions is from the view point of regulation.
Every financial entity should be well regulated for the overall safety of the financial
system as well as growth of the economy.
6) The name Alternative is vital as it shows the entities specified as AIFs are not like
the traditional institutions mutual funds, pension funds, insurance companies etc.
7) Anything alternate to traditional form of investments can be categorized as
alternative investments.

5.2 SUGGESTIONS
Based on the above, we can suggest that:
1) Youngsters should try and invest in hedge funds, private equities.
2) Adding alternatives to a portfolio of traditional assets can help lower the risk
while potentially enhancing returns.
3) Combining assets which do not exhibit a high correlation to one another gives
investors an opportunity to reduce risk without sacrificing return.
4) Alternative investments often have higher upfront fees compared to other
traditional investments, but this is ameliorated by the fact that these investments
are typically not subject to high turnover and ongoing maintenance and

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 transaction costs.
5) The benefit is that investing is alternative investment offers the potential for
large
returns to those who have knowledge and expertise to make wise decision.
6) The problem in alternative investments is that many are illiquid investments, so
this may make it hard to find buyers and sellers, hard to determine the current
value, and may require extraordinary fees and commissions to handle, store or
Market.
7) There is a high level of investment fraud, scams and schemes than most
conventional investments which should be taken care of.

CONCLUSION

Alternative investments hold out a bright prospect for members of a growing new
international investor class willing to pay higher fees to expand their investment
options. Those investors, however, are expecting a high level of service and
transparency. Profiting from the growth in alternatives means devoting time and
resources to deliver that efficiently.

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 BIBLIOGRAPHY

BOOKS

 Fuller, Russell J and James L Farrell, Modern Investments & Security Analysis,
Mc Graw Hill International, New York, (1987).
 Gupta L C, India’s Financial Markets & Institutions, Society for Capital Market
Research and Development, New Delhi (1999).
 Sadhak.H. Mutual Funds in India- Marketing, strategies & Investment Practices,
Response Books, New Delhi, (1997).
 Accola, W. L. 1994. Assessing risk and uncertainty in new technology
investments. Accounting Horizons (September): 19-35.
 Bens, D. A. and S. J. Monahan. 2008. Altering investment decisions to manage
financial reporting outcomes: Asset-backed commercial paper conduits and FIN
46. Journal of Accounting Research (December): 1017-1055.

WEBSITES:
 www.investopedia.com/terms/a/alternative_investment.asp
 www.investologic.in/various-investment-alternativeS/
 thecollegeinvestor.com/2558/swot-analysis-investments

MAGAZINES:
 E-magazine Alternative Investment-Robeco

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