The population of Indian high networth individuals (HNIs) is increasing, but is their investment pattern any different from that of the aam junta ? In an email interaction with BusinessLine , Jaideep Hansraj, Head-Wealth Management and Priority Banking, Kotak Mahindra Bank, explains the investing pattern of the HNIs in India; how they are still attracted to traditional avenues of investing, such as equity, and how they are feeling their way in the start-up space.

What are the assets that Indian HNIs typically invest in? Is there any trend in their asset allocation pattern?

Indian HNIs have been investing across equity, real estate, fixed income and gold. In the last couple of years, we have seen them increase their percentage allocation to equities with a proportionate reduction in allocation to debt and real estate. The fall in consumer price inflation in India, coupled with the slowdown in real estate sales, has led to HNIs leaning more towards financial assets. Tax-free bond issuances by government-owned companies have also elicited very strong response from the HNI investors.

With the growth of start-ups in the country, are the HNIs now allocating a larger part of their wealth to these unlisted companies?

Indian HNIs have always had an open mind towards newer investment avenues. They have a strong belief in the potential of the digital economy. We are seeing HNI families make small investments in start-up companies directly. However, when it comes to investing into slightly more mature companies in the unlisted space, they have shown a preference to go via the private equity fund route.

Is there interest among Indian HNIs towards alternate assets, such as wine, art, sculpture and so on? Do they see gold and jewellery as investments or purely as part of their consumption?

There are sets of families who appreciate alternate assets and track them keenly.

But most HNIs have not shown much preference. Even the market in such categories is less mature and you do not find too many opportunities. However, as with private equity, interest should grow over time.

Gold was a preferred investment option for traditional reasons. But we now find most investors questioning the fundamental basis of buying gold. We believe that it may still be looked at as a hedge. These can give gains when equities see a big correction, thus helping curtail the loss.

A number of India-based hedge funds were launched over the last two years with required investment of over ₹1 crore. Are HNIs interested in this product?

Hedge funds are definitely being looked at with interest. Most of them offer you more consistent returns with lower volatility. For investors who don’t want to be overexposed to market movements, it can add a lot of value.

Regulators have also ensured that hedge funds in India don’t take the same kind of risks that led to huge disappointment for investors globally.

However, we are yet to see hedge funds come into prominence due to the disadvantage in the manner of taxation.

Regular portfolio balanced between equity and debt is more efficient in taxation when compared to hedge funds.

How many of them are interested in investing in assets overseas — stocks listed in overseas exchanges, real estate in other countries, etc?

There has always been interest in such opportunities. Most investors will equally want to own many of the blue-chip names that are household brands in our country now.

However, given the restriction under LRS on the amounts that can be taken out, it will take time for individuals to build a reasonable corpus that can be managed in a serious way. Today, at ₹250,000 per financial year, it will take you four years to build a $1 mn corpus outside.

While financial investments can be bought for smaller denominations, most investors looking to buy real estate will need to wait longer.

What are the popular models used by the Indian wealthy in estate planning?

Estate Planning is a process of arranging and planning your succession and financial affairs through creation of trusts.

While a Will is the most widely used mode of Estate Planning, a well-planned Trust structure can help mitigate the problems that may arise with a Will.

For instance a Will can be contested or needs probates leading to time-consuming disputes and most importantly, a Will is not helpful in case of incapacity (a mental illness, old age, etc.).

A Trust, on the other hand, can help in the management, preservation and smooth succession of assets.

Trusts are a popular strategy for ring fencing against liabilities, matrimonial problems and a possible reinstatement of estate taxes in India. Your family can also make provisions for philanthropy through the Trust structure itself.

We advise our clients on Estate and Succession Planning through a combination of structures which could include Trusts and Wills.

The subject, which was earlier ignored by many families, is gaining in importance now.

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