India's High-Risk Investment Plan

You may hear about alternative investing strategies when looking to build your portfolio. These types of strategies can include investing in products that involve higher-risk investment strategies (leveraging, trading in futures, etc.) or investment products that do not trade on stock exchanges. The investment products we discuss below are high-risk investments that put the onus on you as an investor to do your due diligence and accept that you may lose all of the money you put into the investment.

Some High-Risk Investment Options 

Following are some high-risk financing options - 

Crowdfunding

Start-up or early-stage businesses can raise money for their operations by selling securities (such as bonds and common shares) to investors through a start-up crowdfunding campaign. If you contribute, you are an investor and hope to earn interest or participate in future profits of that business.

Crypto Assets

Crypto assets include cryptocurrencies, blockchain companies, cryptocurrency funds, and initial coin offerings (ICOs). In recent years, certain crypto assets have generated a lot of interest from investors and the financial media. These products are considered high-risk because of their speculative nature.

Many people use the term “cryptocurrencies” when referring to crypto assets. However, while many crypto assets are digital mediums of exchange (and therefore act similar to currencies), not everything that is referred to as a cryptocurrency is a digital medium of exchange, but could be a crypto asset with other properties.

Foreign Exchange

Foreign exchange or forex is traded around the world in a decentralized market based on simultaneously buying one currency and selling another. It is mostly traded in the over-the-counter market where brokers and dealers negotiate directly with each other to determine the relative values of different currencies.

Hedge Funds

A hedge fund is an investment fund that uses advanced investment strategies, and invests in just about anything. Hedge funds don’t generally use the traditional ‘buy, hold, sell’ strategy, but employ alternative strategies like short selling, leveraging, or trading in derivatives on an exchange or in the over-the-counter market.

Hedge funds are usually structured as open mutual fund trusts or limited partnerships, and are issued by way of a private placement using a prospectus exemption, sometimes with an offering memorandum, which offers less investor information than a prospectus. Hedge funds typically require higher minimum investments than regular funds.

Inverse & Leveraged ETFs

A leveraged Exchange Traded Fund (ETF) is designed to return a multiple of the daily performance of the underlying index. An inverse ETF aims to achieve the opposite of the daily performance of the underlying benchmark.

Portfolio advisors manage inverse and leveraged ETFs to speculate or hedge other positions they hold. Unlike regular ETFs, inverse or leveraged ETFs do not hold actual stocks. They hold derivatives that are intended to mimic the performance of the indices or other benchmarks that they track. These ETFs often implement complex strategies that result in unexpected outcomes. Prices of these funds are volatile and go up and down over time, so investors may lose money on both of these products if they hold them for any length of time.

Private Company Investments

Private companies use the private placement market as a way for companies to raise money for their operations from investors by issuing securities.

Unlike investing in public companies, private companies can use exemptions to sell their securities directly to investors without a prospectus or continuous disclosure, and therefore without the added layers of regulatory oversight and protection that the regulation of public companies provides to investors.

Promissory Note

A promissory note, also known as a corporate note, is an unconditional promise made by a borrower to pay interest and repay borrowed money by a specific date or set of dates.

Real Estate-Based Securities

Exempt real estate-based investments are sold to investors in the private placement market without a prospectus, without the BCSC’s review or approval, and usually, without the advice of a registered dealer.

Conclusion

High-risk investment options refer to funds that have excellent potential and the ability to provide high returns. However, these funds are very volatile in nature and come with high risks. When you take such a high-risk fund, you will be required to actively and thoroughly review the performance of these funds from time to time. This will help you be aware of how your fund is doing in the market.

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