Smart Money where it is headed

Manisha Jha | Updated on March 10, 2018


Manisha Jha

Super-rich have been flocking to gilt funds, gold coins and bars and real estate in overseas markets.

Indian High Net Worth Investors (HNIs) may not be skimping on luxury products when it comes to spending, but they are certainly guided by caution when it comes to their financial market investments.

This is reflected in equities taking a backseat in the HNI portfolio for now and safe haven investments such as deposits, gold coins and bars gaining traction in recent times. The measured and predictable pace of the Reserve Bank of India’s interest rate cuts have helped gilt and long term debt mutual funds deliver high returns and HNIs have flocked to them.

Rising strongly

The total net worth of Indian ultra high net worth households is estimated to witness a near five-fold increase to reach Rs 318 lakh crore in 2016-17 from about Rs 65 lakh crore in 2011-12, says the report by Kotak Wealth Management and Crisil entitled ‘Top of the Pyramid –Decoding the Ultra HNI’.

Even as wealth is set to grow strongly, in the uncertain economic and business environment, HNI investments are leaning towards safety, with ‘capital protection’ and ‘low risk’ being the buzzwords. The attitude towards investment, too, has seen a change, with HNIs preferring regular savings to opportunistic investments.

Gilt funds score

HNI preferences on asset classes are evident from the fund flows into mutual funds. Data from the Association of Mutual Funds of India (AMFI) shows that HNIs held 19.8 per cent of the assets in debt mutual funds three years ago. By 2012-13, that had jumped to 35.7 per cent. HNI holding in equity funds for the same period has stagnated at 20 per cent. Individual investors who have bet more than Rs 5 lakh in a fund are categorised as HNIs by AMFI.

Gilt funds, which invest only in Government bonds, have been particularly popular with the affluent. Affluent investors now hold 32 per cent of the assets in such funds, up from 9 per cent three years ago.

This trend also shows that HNIs actively switch their investments on recent returns from an asset class. Equity funds have managed just a 4 per cent annualised return over 3 years and have seen outflows. But debt funds have notched up over 9 per cent returns and have witnessed fresh investments.

There is no direct data on HNI investments in gold. But indirect evidence of rising investment appetite for gold is available from the fact that Indians bought gold bars and coins worth Rs 28,360 crore ($5 billion) in the first quarter of 2013 alone. This was higher by 47 per cent compared with the same period last year.

Stagnating returns

Rajesh Iyer, Head – Investments and Family Office, Kotak Wealth Management, said: “Equities are not being preferred in the last three to four years owing to the stagnation of returns. HNIs are now looking at long-term debt investments in Government or corporate papers which they were not willing to consider two years ago. ”

Structured products offering capital protection as well as an opportunity to play the market have also garnered a good response from HNIs, according to fund managers. But interest in this instrument is dictated by the market movement. These are products where the majority of the money is invested in fixed income securities and a smaller portion in derivatives linked to assets such as equities.

Real estate returns

While residential real estate has managed to give decent returns in the recent past, commercial real estate has also started attracting HNIs as a long-term investment option, offering the prospect of regular rental income, according to fund managers.

“People have started realising that with the interest rate cycle showing signs of turning and prices of commercial real estate and rentals reaching an attractive level after the Lehman crisis in 2008, it makes good business sense to invest in commercial realty and earn a decent return of about 11 per cent,” added Iyer.

Most HNIs do frequently travel abroad and find property prices quite affordable in specific markets there (see accompanying piece).

Many fund managers also say that with investors getting mature, HNIs are looking at a holistic ‘solution’ rather than individual products. “Today HNI clients come to us and say: - Don’t show us products, show us a diversified and disciplined approach to investing with a mix of various asset classes,” said Rohit Bhuta, CEO, Religare Macquarie Private Wealth.


Published on June 08, 2013

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