Investments in a rich man’s world

Managing the financials of HNIs/UHNIs is about wealth preservation and capital appreciation

High and ultra high net worth individuals (HNIs and UHNIs) prefer completely personalised services and customised investment solutions. Typically, HNIs are individuals having more than ₹5 crore of investible surplus, while those with more than ₹25 crore of investible surplus are categorised as UHNIs.

Managing the wealth of HNIs/UHNIs is primarily hinged upon two premises — wealth preservation and capital appreciation. In general, they look for investment products that offer risk management, and benefits from movements in financial markets.

Betting on different markets

The secular bull run in the equity markets in CY2017 has taken a pause as market volatility has resurfaced on the back of rising bond yields worldwide, trade-war concerns and higher crude prices. We perceive the current volatility as an opportunity to increase allocation towards equity. Better corporate results in the recent quarter, an expected domestic GDP growth of 7.5-7.7 per cent in FY 19, infrastructure push and continued reforms support the Indian growth story.

Disciplined investing, through the SIP/STP (systematic investment/transfer plans) route for equity investments to ride the current volatility is on the rise among domestic investors.

We suggest an allocation of 70:20:10 in large-/mid-/small-cap stocks through mutual funds, portfolio management schemes (PMSes), or equity alternative investment funds (AIFs).

The concentrated and bespoke portfolio offered by PMSes/AIFs deliver better risk-adjusted returns for HNI and UHNI investors in the long run.

To take part in the global growth story, there are options under RBI-approved LRSes (Liberalised Remittance Schemes) that allow investors to park amounts in international stocks — for example, Amazon, Google and Netflix — which will help investors diversify their portfolios further and reduce risk.

Offbeat avenues

Off late, fixed-income products such as accrual bond funds (to mitigate duration risk), fixed maturity plans (FMPs — to lock in investments at prevailing high yields) and high-yield debt PMSes have attracted the attention of HNIs. Customised structured products with capital protection allow investors to enjoy the upside of equity market along with the stability in returns from the debt segment, thus being a preferred instrument to counter market volatility.

Though investment in residential real estate has been slow for some time now, commercial real-estate deals have emerged favourable destinations for HNIs to park their money. Real-estate projects that are backed by tangible assets and a steady cash flow, regular payouts and less dependence on late-stage returns are favoured by HNIs. High-quality, pre-leased deals in niche segments such as warehousing and students’ housing with higher rental yields, coupled with capital appreciation, have been an added attraction for the HNIs in recent times.

Long gestation, high-yielding avenues such as private equity and venture capital funds and angel investments form about 10 per cent of the portfolio for HNIs/UHNIs.

Minuscule allotment of shares during the IPO stage often leaves investors disheartened.

Investment in pre-IPO unlisted shares of well-established companies with good promoter background provides an opportunity to buy equity stakes ahead of a firm’s stock market debut.

For majority of the investors, early-stage investments in equity shares of select companies have led, in the past, to maximisation of wealth in the long run. The lacklustre performance of gold in recent times has increased the attractiveness of alternative investments such as diamonds, which are comparatively less volatile.

The writer is CEO, Karvy Private Wealth.

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