HNI Investments: The way the super rich invest their money and chances to get them in India – Explained.
By scions of business into the new-age entrepreneurs who have built valuable businesses, their investment decisions are as diverse as their business ventures. It would be a gross oversimplification to assume that they all invest in the same avenuesnonetheless, there are similarities when it comes to their investment modus operandi.
Together with economic and market cycles, the preferred asset classes also may vary. About a decade ago, real estate was a favorite for investors. Following the observance of this absence of returns from this asset class as well as under-performance for a protracted time, there emerged a change in preferences. Recent reports found that the HNI and ultra HNI segment are increasingly choosing monetary assets, over their physical counterparts. In addition, this is driven by ease of administration and a growing lack of interest from the next generation for holding and maintaining large property holdings.
Such a tendency is partly structural given the steps taken to formalise the market and partly cyclical given the functioning of the underlying asset categories. Unlike physical assets, financial assets also provide the opportunity for simplicity of operations, as well as lower costs of the same. By using managed funds like mutual funds for equity, and sometimes even gold (through exchange traded fund) this can reduce the price of investment. Financial assets are also liquid, providing the investor the liberty to market a financial security in an exchange-based setup, whenever he desires, and in the price he demands. That is in stark contrast to real estate, where calculating could sometimes become difficult.
Having said the above in the event the dislocation in prices continues for a while afterward cyclically a few components of property such as equity investments in housing finance businesses, reputed real estate businesses, may become intriguing choices. With the advent of REITs, investors receive a fresh manner of entering into this asset category too.
According to a’Global Family office report from 2019,’ Family Offices are realigning their investment plans to mitigate risk (45%), increasing their cash reserves, or preparing to capitalise on opportunistic events (42% each).’ This underlines the fact that Family Offices are increasingly understanding the value of market cycles and would be happy to hold cash. This accent towards capital preservation especially when there are indications of an economic downturn, validates the Family office notion has come of age and has surpassed wealth management’s product-push method.
There is also an increased emphasis towards sustainable and impact investing. Investment has attracted a great deal of attention in recent decades – and an equally impressive rise in investment. The family office area isn’t immune to the appeal of renewable investing. With sustainable investment, households can invest in line with their values and make substantial positive change, whilst also concurrently generating profit, thereby cementing a positive family legacy and supporting long-term wealth preservation.
Like the sustainability area, impact investing- investing with the aim to generate measurable environmental or social impact, alongside giving a competitive financial return, also keeps growing, with investors of all kinds and from all over the world today involved. The most common areas of investment are schooling (45 percent ), agriculture / food (45 percent ), and energy and resource efficiency (43%).