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Risk mitigation in the current economic environment has become quite challenging, High Net-Worth Individuals (HNIs) are vulnerable to lose a huge quantum of funds in the event of downside. The current environment is also transforming amidst unprecedented challenges which are paving the way for new investment opportunities.
Some of the key trends which are seen in HNI investing are –
The market valuations have scaled up to dizzying heights over the past 12 months, there is a cautious yet positive outlook among HNIs. They continue to cover large-cap stocks and businesses which have a positive long-term outlook. Stocks that will benefit from a turn in the economic cycle are also potential stocks for investment. The fundamental health of the company has gained prominence in the stock-picking process, high quality stocks trading at reasonable valuations are preferred given the current market scenario.
Despite concerns of an overheated market, there is increased infusion of funds into equity, hence, HNIs continue to participate by cautious and measured exposure into equity. The focus now is not about gaining extraordinary returns in the short term, HNIs are interested in participating in equity with a long-term perspective, especially with global interests being abysmally low.
With Exchange Traded Funds being the new sensation especially with the millennials in the HNI and UHNI zone. Although it has been around for a while, the trend with ETFs and Index Funds are picking up only now.
In fact, the HNIs have hired fund managers to privately manage their portfolio either through PMS or AIF and generate alpha while safeguarding their overall wealth. AIFs are gaining traction and the industry witnessed growth of 27% in AUM in the last one year. AIFs taps into unique opportunities. They offer investment opportunities for HNIs like venture capital funds, real estate, long only funds, unlisted markets and start-up funding etc.
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Sustainable development goals (SDG) have gained importance especially in the backdrop of the current pandemic, where many companies have failed to sustain the sudden shock in the system. HNIs are increasingly looking at socially responsible investing (SRI) and are constantly looking for companies with a strong environment, social and governance (ESG) goals.
A strong SDG framework of the company enables them to weather through sudden shocks and enhance their resilience. They employ funds for the creation of social and environmental benefits, which will translate to better value creation for the shareholders in the long run. ESG is still in the nascent stages in India, there is a requirement for standardisation of reporting and data representation which will help in conducting meaningful data analysis.
In fact, the total inflow in ESG funds went up last year by 76% from the previous year. The total ESG funds in India as on March 2021 was about Rs 10,000 crore.
Many of the sectors are leveraging technology and are at a threshold of undergoing a major transformation. HNIs are scouting for such opportunities, they are eager to participate in these opportunities either through publicly traded companies or through private equity funding opportunities. FinTech, AgriTech, EduTech, PharmaTech are some of the sectors which have gained focus over the past few years and are embracing technology in an unprecedented way.
Gold is still one of the most sought-after assets, it offers stability to the overall portfolio. It is also a great means to plan for your long-term financial goal. There are many alternative means of investing in gold such as gold exchange-traded funds, gold mutual funds, sovereign gold bonds which bear lower taxes and expenses. Gold preserves value during uncertain economic scenarios, it is also called a haven. Gold prices tend to remain stable or gain value during phases when equity, debt, currency and commodities lose value. Gold as an asset class is thus a hedge against inflation.
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Real estate exposure calls for high fund allocation, HNIs have in the past preferred investing in real estate directly. Given the paperwork, maintenance, other costs, taxes, there is a paradigm shift in their preferred mode of exposure in real estate. The advent of REITs enables realty exposure with much lower funds, this investment avenue enables gaining exposure in commercial properties. The rental yields of commercial properties are higher than residential properties, hence making this an attractive alternative to physical real estate.
The overall outlook towards philanthropic investments have also gone up significantly with the HNIs over the last few years. The investment landscape is brimming with new opportunities and HNIs eagerly await to embrace such opportunities.
Policies, Codes & Other Documents