We all aim to create substantial wealth in our lifetime such that there is enough for ourselves and also our families. Wealth creation, however, is a long-term process and requires us to tap onto the right opportunities at the right time. By choosing the right asset allocation, it is possible to fetch higher returns that are above inflation.
For the HNIs or high net worth individuals and the ultra HNIs, however, wealth creation is a two-fold process since it involves the preservation of wealth along with growing it. An HNI investor in India is one who has a surplus of over Rs. 5 crores. Today, more than ever, there is a wide range of investment options available for HNIs.
Here, we will talk about the top investment options that can cater to HNI needs.
#1 Alternative investment funds
Financial avenues that do not come under the traditional categories are called alternative investments. Some examples are private equity, art and antiques, hedge funds, commodities, etc.
HNIs can consider investing in Alternative Investment Funds (AIFs) since these are often not correlated to most traditional asset class performances. This allows appropriate portfolio diversification and chances of earning higher returns. AIFs also generally require a larger capital investment. The minimum investment for AIFs is around Rs. 1 crore and these are privately placed. AIFs are managed by highly skilled fund managers who specifically understand the investment aspirations of HNIs.
Some AIFs invest in start-ups and some focus on investing in different trading methods like derivatives, unlisted stocks, leveraged positions, etc.
#2 Market Linked Debentures (MLD)
MLDs offer index-linked returns and generally follow benchmarks like equity index, gold index, government yield bonds, etc. This allows investors to gain exposure to a certain market segment while avoiding the risk of direct exposure in an asset. HNIs can invest in market-linked debentures (MLDs) in situations like the current volatile market scenario.
MLDs are issued by NBFCs. Listed MLDs come with a credit rating and may therefore offer the benefit of capital protection. These also come with tax benefits as compared to other debt investments. One of the risks of these investments is the principal repayment default risk of the underlying debt investment.
#3 REIT & INvITs
Investors can gain exposure to the real estate sector by investing a lower amount while enjoying better liquidity through products like REITs and InvITs. REITs are Real Estate Investment Trusts and INvITs are Infrastructure Investment Trusts. With REITs and InvITs HNI investors can diversify their portfolio and also enjoy intermittent income flows since SEBI has mandated these funds to distribute 90% of earnings to unit holders.
#4 Pre-IPO
2021 was known as the year of IPOs (initial public offerings) with a range of companies entering the stock markets to attract investments from the public. Many companies saw successful listings and gave various wealth-generation opportunities to investors.
However, it is the Pre-IPO stocks or unlisted shares that attracted the interest of HNIs. These shares are not traded on stock exchanges and are available for buying/selling in the OTC (Over-the-Counter) market. The primary benefit offered by such investments is that HNIs can gain exposure to new companies that are technology and innovation-focused with innovative businesses. This format also allows HNIs to purchase the desired number of shares depending on their capacity which is not possible in an IPO, especially those that get oversubscribed.
#5 International investments
HNIs in India have always preferred international investments as part of their portfolios mainly for benefit of geographical diversification and as a hedge against rupee depreciation. HNIs can invest in international markets through feeder funds which invest the corpus in international products like stocks, bonds or hybrid products. This investment is also preferred by HNIs who want to establish a strong financial base outside the country.
#6 Make use of Portfolio Management Services
There are many investment options available for HNIs but it might be difficult to make the right choices and decisions. For those who require help in managing and growing their wealth can make use of Portfolio Managment Services(PMS).
Fisdom Private Wealth is one such platform that offers offers differentiated investment products including , unlisted private equity, alternative investment funds (AIFs), structured products, and international products in addition to the regular investments in domestic equtiies/mutual funds, etc.
Conclusion
In today’s global economic uncertainty and volatile domestic investment environment, HNIs are widely concerned about preserving their wealth and enhancing portfolio returns. Additionally, for HNIs, portfolio allocations need to be highly customised to reflect an individual’s risk-return objectives and investment period. Since the investment avenues mentioned above offer unique benefits due to their underlying characteristics, they can be explored for an ideal portfolio mix.
FAQs
Like any efficient investment portfolio, an HNI’s portfolio should also be rebalanced periodically to fetch maximum returns. This helps in adjusting the portfolio to factors such as market conditions, interest rates, currency exchange rates, etc.
Yes, HNIs can include mutual funds in their portfolio to maximise the efficiency of returns since mutual funds can offer exposure to different asset classes and sectors.
HNIs or high net-worth individuals (HNIs) are individuals who have an investible surplus of over Rs. 5 crores.
An IPO investment in the HNI category is meant for high-net-worth individuals. Here, one must apply for a minimum amount of Rs. 2 lakhs. HNI category is a part of the reserved number of IPO shares for allotment to NII (Non-Institutional Investor).
