MFs most preferred asset class for Indian HNIs: Wealth X director

It is not just retail investors who put their hard earned money in mutual funds, HNIs or high net worth individuals also prefer investment funds including mutual funds and ETFs over direct equities, AIFs, property and primary business.

The recent IIFL Wealth-Wealth X report reveals HNIs reckon the best place to book returns right now is investment funds, followed by equities and fixed income.

Investment funds make up one-third of the total assets held by the super wealthy and 84 percent of HNIs hold at least some of their fortune in these funds. Interestingly, one in five HNIs holds over half their wealth in investment funds.

Direct equity, cash and fixed income followed investment funds and primary businesses. In terms of wealth allocation, the report shows 16 percent of wealth is held in equities and 13 percent in fixed income. Cash deposits account for 6 percent.

In addition, 48 percent of HNIs want to increase their exposure to mutual funds over the next year, according to the report.

Moneycontrol spoke exclusively with London-based David Barks, Director, Wealth-X Custom Research who was in India to launch IIFL Wealth Index 2018 report.

He shared key insights from the report with Moneycontrol.

Q: The report says affluent Indians and their wealth is expected to rise by 87 percent over the next 5 years. Are you seeing this kind of growth in any other region of the world?

 A: The growth of the Indian affluent has been unique. While there are other regions of the world that are witnessing high growth in affluence, in India, we are seeing a high absolute as well as percentage growth. Also, this growth is coming from a relatively larger base. Our research shows that in the coming five years, both the number and the wealth of India’s wealthy will rise by over 85 percent.

India's HNI growth of 40 percent over the past five years has eclipsed that of its rivals in economies elsewhere in the world, placing India in a league of its own. By comparison, the global HNI population and its wealth grew by 3.2 percent and 4.2 percent, respectively, over the same period. India is ranked fourth in the world for the number of newly wealthy individuals joining the ranks of the rich, coming in behind economic behemoths like the US, Japan, and China but ahead of European powerhouse Germany.

Q: Key factors that you believe have perpetuated this growth?

 A: A host of factors, namely openness of the economy, increased ease of doing business, trade has driven reinvestment and unleashing of various economic reforms have conflated to perpetuate this strong growth of wealth in the country.

India’s economy is expected to grow at a fast clip as various government initiative with respect to the passing of the GST Bill, the Bankruptcy Code and demonetisation come to bear fruit and add to the growth in the economy. In its biannual publication, India Development Update, the World Bank said India’s GDP growth is projected to reach 6.7 percent in 2017-18 and accelerate to 7.3 percent and 7.5 percent in 2018-19 and 2019-20, respectively.

This is in comparison with the Chinese economy growing at a projected rate of 6.3 percent in 2019. This strong economic growth is likely to underpin the wealth creation of India’s HNW elite.

Q: What role will technology play in this growth?

ATechnology is the future and a huge amount of wealth is being generated very quickly due to technology. However, most of the wealth currently is being generated by traditional industries like manufacturing and materials while relatively lesser wealth is being generated by technology. The next wave of wealth generation may perhaps be fuelled by technology.

Q: Would you like to briefly discuss the key findings of the report?

A: Our survey shows that the Indian wealthy is conscious of risks but also very smart about their investments. They are not afraid of risk but prefer to manage it by adopting a diversified and sophisticated strategy for their financial investments. High net worth individuals seek to achieve growth by spreading their investments across asset classes, the largest of which are investment funds, direct equity holdings, and fixed income.

But the very top tier of wealth-holders, the ultra-high net worth individuals (UHNWIs), are more heavily invested in their own businesses, usually within India. Another interesting theme that became evident was that money is not the sole motivator for this demographic. They are also getting increasingly inclined towards social impact investing which they view as being on par with philanthropy. There is a deep focus on social impact and how wealth can be used for driving social causes in the country. International property and luxury goods continue to form a part of their investment portfolio.

Q: Any surprising trends that were revealed by this research?

A: No surprising trends really. The Indian wealthy is on a growth trajectory and continues to focus on building businesses, wealth creation and contributing to the future. They are confident about their wealth and wealth building journey. However, the survey also indicated a clear departure from clichés about the Indian wealthy. The outsider view is one of excesses and bling. This is far from ground reality.

Q: Impact on the wealth management industry?

A: Trust forms the bedrock of the relationship between an individual and his wealth manager.  India’s wealthiest people ‘on average’ employ two wealth managers and their primary criteria for choosing them are a compelling investment track record and an impressive company reputation. Additionally, transparency in dealings and charges influence an individual’s choice of a wealth manager.

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