High networth individuals (HNIs) are moving their money to safer fixed-income products and ‘no-nonsense' bonds to ride out the volatile equity markets, wealth managers told Business Line .
Investing in debt
People are confused about where the stock market is headed to in three to six months from now, said Mr Sameer Kamdar, chief executive, ASK Wealth Advisors. “HNIs are parking money in fixed-maturity products (FMPs), which is a favourable place for investment in the short term or medium term. FMPs are also getting fairly good rates and so it makes sense to invest in fixed-income and structured products.”
“At this point of time, there is a trend towards investing in riskier debt instruments or slightly alternative asset classes,” said Mr Ashish Khetan, Head of Family Office, Kotak Wealth Management.
HNIs may, however, invest in equities of specific sectors for long-term returns. “Looking at specific sectors, consumption, banking and finance themes are getting stronger. One can look at investing in these sectors for the long run. Telecom and real estate have been affected,” said Mr Khetan.
Alternative trends
As most wealth managers find it difficult to gauge economic movements currently, they believe more money should be invested in a diversified manner to minimise risks.
“HNIs allocate their money into five main asset classes — cash, fixed income, equity, real estate, alternate investment. The percentages of investments in these asset classes vary according to the market conditions,” said Mr Pradeep Dokania, Chairman and Managing Director, Merrill Lynch Wealth Management.
Real-estate developers are also raising money from HNIs through financial institutions. “Developers are aware that HNIs are sitting on large pools of money, the entire transaction is, of course, of a secured nature, and the approximate returns are calculated before the investment,” said Mr Khetan.
“Gold is an evergreen investment option. Although there are no fresh investments in real estate, those invested in it will get good returns in the long term. Art funds are not attractive anymore as the market is unstructured. HNIs should only invest in art if they like it and understand it,” said Mr Kamdar.
Wealth managers believe that the wealth-management market is still evolving in India, and Indian investors are not evolved enough to invest significantly overseas.
“Investment overseas will become more relevant in the next five years. At this point of time, investment overseas is less than 1 percent in an HNI's portfolio. The reason is that the investment window has opened only recently. In the next five years, investments overseas could make up around 20 per cent in an HNI's portfolio,” said Mr Dokania.
Deciding where to invest an HNI's money is challenging for a wealth manager. “Clients have the mindset of being a little transactional. They want to do it because someone else has done it, and they have a short term view on it. It is quite challenging to steer their mindset towards the long term so that they don't get distracted by short-term excitement,” said Mr Kamdar.
Another challenge is to stick to an asset-allocation plan for HNIs as emotions can come in conflict with wealth-management plans.