June 16, 2022 Digital
A Crypto investment fund is today one of the cutting-edge ways to invest in digital assets. Despite the risk implicit in this type of new investment, every investor must know and consider it when entering the crypto space.
They represent the new generation of investment funds that emerged from the Cambrian explosion of cryptocurrency-based assets and companies. Here we explain what they are and how to invest in crypto funds in India safely and effectively.
Crypto funds are investment vehicles similar to traditional hedge funds, only that they operate with crypto assets directly or invest in companies related to cryptocurrencies and other digital assets.
However, in the countries where they are regulated, they are governed by slightly different rules than traditional funds. In some cases, crypto investment funds are legally constituted and facilitate investments for large and small investors. Through them, investors can buy shares and share the profits or returns with others as the fund’s value grows.
These funds have an excellent capacity for diversification since they offer products linked to Bitcoin and other cryptocurrencies. Likewise, they include in their portfolios digital assets and related businesses (exchange platforms, Defi, DAO, gambling, NFT, Metaverse). The rise of cryptocurrencies and their high returns has enabled the growth of crypto funds.
Through them, it is possible to configure a balanced investment portfolio, which helps mitigate the risk of direct exposure to cryptocurrencies in the face of their high volatility.
Cryptocurrencies have become assets desired by investors in India and other countries worldwide. Their growth is because they represent a value deposit and a refuge against inflation. Beyond the ups and downs of their volatile nature and the macroeconomic circumstances of the moment, they are the money of the future.
Investment firms created crypto investment funds to combat the risks of investing in a specific digital currency. Their job is to incorporate various assets into their respective portfolios and diversify them with others that are similar or not—for example, equities, precious metals, commodities, etc.
This reduces the risk associated with the investment. Thus, when crypto, such as Bitcoin (BTC) or Ethereum (ETH), falls in a bear market, the investment in the crypto fund allows you to keep said investment covered.
If Bitcoin falls, the profits generated by other investment assets will serve to cushion said fall. In such a way, the impact is always less because it is a diversified portfolio made up of several assets:
Being unrelated or inversely correlated, such assets appreciate over a given period. The purpose of a good crypto investment fund is always to design a sufficiently balanced and diversified portfolio. This is possible because, behind the crypto investment funds, there are professionals who know the market. They not only manage strategic information but apply proven investment strategies.
There are several types of crypto funds whose portfolios are direct or indirect investments in digital assets.
Investments in cryptocurrencies have been growing by leaps and bounds. In 2021 around 20 million Indians decided to get involved in crypto-related business and assets, according to The Economic Times.
Cryptocurrency exchange WazirX, for example, saw trading volume through its platform grow to some $43 billion last year in India. With a record growth of 1,735% since 2020, it is at the highest level in the country.
As for the crypto funds in India, they are taking shape, although they are not yet fully regulated. Fortuna Capital is India’s first true blockchain, cryptocurrency and digital asset fund, headquartered in Mumbai.
However, other cryptocurrency investment platforms offer the SIP (Systematic Investment Plans) function, through which it is possible to invest several sets of coins.
The only limitation is that most of these services offer short-term investment options (daily, weekly and monthly). Instead, crypto investment funds themselves have long-term benefits. At present, there are no crypto funds in India that offer SIP-like solutions for investors.
A variety of investors participate in crypto funds. They invest their money in digital assets with high growth potential or already consolidated virtual currencies, which have proven their strength over time and always offer high returns, as mentioned before.
Although anyone can invest in a crypto fund, it usually requires significant initial investments placed by investors with greater capacity to contribute higher volumes of capital.
The teams that manage these funds are generally small and highly skilled from a professional and operational standpoint. There are crypto investment funds that only allow the participation of high-end investors who participate with high minimum investments.
However, there are also funds created especially for retail investors who can start their investment with very little money. They often offer proprietary products or token investments tied to the portfolios of other investors.
In the case of crypto funds in India, Fortuna Capital – a leading crypto fund, the investors are high-net-worth resident Indian citizens and non-resident citizens. Foreign nationals, corporations, family businesses, individuals, HUFs, limited liability companies (LLPs) institutions and crypto funds from abroad also participate.
As digital finance grows and more and more people in the world adopt cryptocurrencies, these new forms of investment have emerged. One of the reasons why more people every day invest in crypto funds in India is because of the security they offer.
Being run by professional managers and having a legal business status, these funds offer a sense of trust and quality execution to the investor on their crypto investments. Although all crypto funds promise a good return, you must be aware that nothing is certain in this type of business because they are risky investments.
Another reason why people invest in crypto funds is because of the transparency of the investment. Periodically, the investor receives a detailed report of his investment that allows him to monitor the portfolio.
The main feature/benefit of crypto investment funds is the diversification of the portfolio and the protection they offer against inflation. That makes them a very attractive business model in the crypto space. Crypto funds in India will be looking forward to bringing forth the best of the traditional and cutting-edge investment portfolios for these digital assets to fulfil the needs of the market.
As with traditional hedge funds, investors in crypto funds must commit to keeping their money invested for a specific time without being able to mobilize it, depending on the investment strategy followed by the fund.
When the asset or assets that are part of the portfolio grow enough, they are sold in the market, and each investor obtains profits in proportion to their investment.
First, the investor must comply with the mandatory customer identification requirements required by law (KYC). A valid identification document and the client’s personal information (address, mail, phone) must be provided.
Then it is necessary to sign the Contribution Agreement with the fund where the investment details are indicated. That is, the amount of money you commit to investing, service fees, and performance-based fees. The risks associated with the investment are mentioned in the contract.
When a crypto fund is chosen, you, as an investor, have a high degree of trust in that firm and its managers. So before deciding on the crypto funds in India, carefully study its service offering, the products it offers and the strategy, it will apply to multiply your money.