Indian high networth Individuals during tumultuous times should always root for the basics. Remove unnecessary noise and focus only on the essentials of the situation.
High net worth individuals (HNIs) are a class of people who fall under the financial services sector and have an investible surplus of more than Rs 5 crore. These investors fall within the retail category since the financial industry assesses them based on their net worth.
Net worth is an amount by which assets exceed liabilities.
HNIs are typically understood to be those whose investable assets, such as bonds and stocks, above a specific threshold. A high-net-worth person is someone who holds liquid assets, which exclude assets like a principal residence, durable items, or collectibles, and include money held in brokerage accounts or banks.
Private wealth managers constantly have a high demand for HNIs because it takes a lot of effort to protect and keep such assets. Given that wealth managers are compensated as a percentage of the overall assets they manage, the more liquid an individual’s holdings are, the more desirable an HNI becomes to wealth managers.
What is an investible surplus?
The term “investible surplus” refers to the additional cash that a person has available to invest in assets that will increase in value. In actuality, real estate investments are not included in investable excess, nor are any assets bought without expecting a return. For instance, a person’s home, personal belongings, cars, or farm cannot be included in the definition of investible surplus.
In essence, a person is not considered an HNI if they own a home worth Rs 5 crore, bank fixed deposits for Rs 1 crore, and a car worth Rs 50 lakh. Even though their total net worth, which includes their home and bank accounts, exceeds Rs 6 crore, their investable surplus only consists of a Rs 1 crore fixed deposit.
Types of HNIs:
- Investors who have liquid assets valued between Rs. 5 lakh and Rs. 5 crore are considered high-net-worth individuals (HNWIs).
- Investors with liquid assets of between Rs 5 crore and Rs 25 crore are referred to as “very high net worth individuals” (VHNWIs).
- Ultra-high-net-worth individuals (UHNWIs): Investors with liquid assets worth more than Rs 25 crore
Here are four investing choices to take into consideration if you are an HNI and are unsure of how to invest your wealth:
Residential real estate and commercial real estate are the two main categories of real estate. It is no secret that a significant section of Indians have preferred real estate over the years as a location for investment.
For HNIs, residential real estate has always been a popular choice. Multiple homes are purchased for a variety of goals, including rental income, vacation use, housing for the younger generation, or a combination of these. HNIs have traditionally viewed residential real estate as a secure place to put their money because of rising wages, the ease of obtaining bank loans, and post-liberalization price increases. The passage of RERA has given HNI home buyers significant transparency and dispute resolution options. In order to appeal to HNIs, developers have begun building projects with high build quality and numerous facilities.
For HNIs, commercial real estate has been a top investment choice. Compared to residential real estate, commercial real estate offers typical yields that are higher. Depending on the micro market, returns can range from 6% to 8% on average and up to 11% in extreme cases. The yield is computed by multiplying the result by 100 after dividing the annual rent by the property’s market value. Therefore, if the property is worth Rs 1 crore and the annual rent is Rs 6 lakh, the rental yield equals 6%. In desirable locations, there has been an increase in demand for Grade A office space. These assets end up being high-income producing and low-risk. HNIs may also take into account warehouses, shopping centres, etc. in addition to office spaces.
India’s equities market has had the best performance over the past 25 years among markets worth more than Rs 1 trillion. This is partly attributable to the consistent inflow of capital from investors who are optimistic about India’s post-liberalization growth.
Direct stock investing is only suitable for those who are skilled at conducting extensive research and have the necessary experience. Smart investors develop a strong portfolio while also looking for multi-bagger possibilities. New investors can buy shares of companies with solid fundamentals directly.
A mutual fund
Mutual fund investment is the best choice for people who don’t have the knowledge or time to invest directly in the markets. When it comes to selecting a mutual fund to invest in, HNIs have a wide range of possibilities. A systematic investment strategy allows for both lump-sum and incremental investments.
Hedged equity products
Overexposure to equities, however, can cause one’s portfolio to fluctuate significantly due to volatility. Macro problems like disruptions in international trade or unfavourable geopolitical scenarios may cause market ups and downs. HNIs would be wise to think about stock instruments that are hedged. These goods can limit the negative effects on their portfolios.
Sovereign gold bonds
The days of worrying about the purity of gold while buying it are long gone. Instead, one can think about buying national gold bonds. The Indian government issued these bonds. These bonds, also known as “paper gold,” are available for purchase online. They won’t need to be kept in a physical locker, so don’t worry about that. Additionally, you will receive an interest rate of 2.5% every year, which is a guarantee.
There’s no need to be overwhelmed by all these options. A qualified financial manager can also be consulted to handle these investment opportunities and aid in producing the best results.
Investment strategies for Indian High Networth individuals in turbulent times-
One should consistently support the fundamentals throughout turbulent times. Only the essentials of the situation should be studied after excessive noise has been eliminated. An overt obsession with in-depth research may cause either hyperactivity or inaction in decisions regarding investments or portfolios. Instead, to avoid missing the bigger picture, this analysis should be viewed in conjunction with an aerial view perspective from above. Both of these elements would be included in a MECE (mutually exclusive, collectively exhaustive) study, while correlations and sensitivities between some moving parts cannot be overlooked.
1. When making decisions, maintain objectivity and reasoning
In related news, it’s important to keep behavioural biases under control in difficult circumstances. Instead of reacting to the news cycle or market movements, one should constantly try to act rationally and make judgments based on facts. Idealised Bayes’ theorem-derived anticipated values should not diverge greatly from utility functions and corresponding certainty returns (returns). However, people frequently display risk-averse behaviour rather than risk-neutral behaviour, which needs to be moderated, especially during trying circumstances.
2. Stick to your asset allocation policy
Investors should stick to their asset allocation strategy, which includes both strategic and tactical asset allocation (tactical asset allocation). Even in difficult circumstances, SAA would frequently maintain its course and usually take the investor’s long-term wants and desires into account. TAA may need to be tweaked and adjusted in order to take advantage of mispriced possibilities or to lessen potential dangers in turbulent times. Diversification among managers, instruments, asset classes, sub-asset classes, and geographies is still a consideration.
3. Conduct due diligence
The importance of conducting appropriate research cannot be overstated. It also pays to have the correct subject-matter specialists on hand when you need them. A certain measured degree of consensus gauging can assist the investor in arriving at well-rounded conclusions, even though excessively seeking corroboration or data mining to meet personal opinions should not be recommended. This is probably an excellent place for knowledgeable investment managers to start.
4. Validate the margin of safety while investing
Validating the margin of safety is crucial for investment decisions at all times, but it becomes even more important in chaotic situations. In these circumstances, there is a potential for a permanent loss of capital caused by disruptions brought on by structural changes in the economy and macroeconomic conditions. The value offered to investors at the current price at the time of investing needs to be analysed after taking into account the market potential and realisable earnings.
5. Create a buffer corpus
For all investors, liquidity management is a crucial component. Sometimes, especially during erratic periods, liquidity is the key to maximising market possibilities. Adequate buffers would prevent premature withdrawals from current allocations to satisfy requirements or take advantage of market possibilities. Institutional funds like sovereign budget stabilisation funds, pension funds, or savings funds often plan a separate investment program for such a budgetary reserve fund. Not to mention, as the adage goes, “The will to win is necessary, but the will to prepare is crucial.”