As investment products expand in scope and variety, asset classes like gold, real estate investment trusts (REITs), and alternative investment funds (AIFs)
are often discussed for their contrasting characteristics. While each comes with its own structure, risk-return profile, and role in portfolio construction, understanding their features is key to evaluating them appropriately.
Gold
Gold is widely recognised as a traditional asset that offers a hedge against inflation and currency fluctuations. It has historically played a stabilising role during volatile or uncertain periods.
According to Abhishek Khudania, Senior Executive Director – Wealth at Client Associates, gold continues to serve as a reliable hedge, particularly during global geopolitical instability.
He added that in recent years, the asset has even outperformed equity markets. Allocations to gold in high-networth portfolios have ranged between 5-15%, suggesting its use as a diversification tool rather than a primary growth driver.
Real estate investment trusts (REITs)
REITs represent a structure that allows investors to gain exposure to commercial real estate without the operational challenges of physical ownership. These investment vehicles pool funds to invest in income-generating real estate assets, such as office parks and retail complexes.
Vinayak Magotra, from the founding team at Centricity WealthTech, explained that REITs are advantageous as they remove the need for active management.
He pointed out that REITs enable access to commercial property with regular dividend payouts.
With India expanding its commercial property sector and the regulatory framework strengthening, Magotra noted that the structure offers greater transparency, liquidity, and tax-efficient returns.
Supporting this, Khudania highlighted that India’s REIT market has surpassed a ₹1-lakh crore valuation and typically offers yields close to 7%, blending rental income with potential capital appreciation.
AIFs
Alternative investment funds (AIFs) operate differently, offering access to non-traditional and private market strategies. These include private equity, structured credit, venture capital, hedge funds, and pre-IPO investments. As of December 2024, AIFs in India had received commitments exceeding $150 billion.
Magotra observed that AIFs are distinctive because they offer tailored strategies such as long-short equity or sector-specific themes in early-stage ventures.
Khudania noted that AIFs often deliver yields in the 12-18 percent range and tend to move independently of public markets. These vehicles support risk-adjusted returns by enabling investors to access professionally managed and relatively uncorrelated investment opportunities.
Liquidity profiles vary across instruments
The liquidity profile of these instruments differs significantly. Gold, in physical or digital form, is widely available and remains highly liquid. REITs offer intermittent liquidity through stock exchanges, although their trade volumes and price movements can be influenced by broader market conditions.
AIFs, typically structured with lock-in periods, are less liquid by design and suited for investors with longer investment horizons.
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Taxation considerations
Tax treatment also varies and can impact outcomes, especially under the new tax regime (NTR).
Sudhir Kaushik, Co-Founder and CEO of TaxSpanner, pointed out that the regime does not allow the Section 87A rebate to apply on capital gains. He explained that while the NTR offers simplicity, it may not be cost-effective for those earning significant capital gains, such as short-term profits from market-linked investments.
Which one to opt for?
Each of these instruments serves a different purpose. Gold may appeal to those looking for a hedge against inflation and global uncertainty, particularly in portfolios where stability is a priority.
REITs could suit investors seeking regular income and indirect exposure to real estate without the complexities of physical ownership.
AIFs, meanwhile, may be relevant for investors with higher risk appetite and longer investment horizons who are looking for access to private markets and differentiated strategies.
The choice between these depends on factors such as investment goals, risk tolerance, liquidity preference, and tax impact. As the structure and function of each asset class differ, evaluating them in the context of one’s overall financial strategy remains essential.
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