Challenges faced by HNI and Ultra HNI while investing

High- and ultra-high-net-worth individuals constantly fear losing their wealth. They also face challenges that are unknown to regular stock market investors. For example, they face challenges related to changes in tax codes, intergenerational wealth transfers, and liquidity management. In this article, we will explore the challenges faced by these individuals in detail. 
 

Who are HNIs and Ultra HNIs 

A high-net-worth individual in India is an investor in the stock market whose individual net worth exceeds INR 5 crores. Business owners, entrepreneurs, and corporate executives face considerable risks in the market, risks unknown to regular investors. Individual investors with a net worth exceeding 25 crores are classified as ultra-high net worth individuals. While they, too, face risks different from the regular investors, their capacity to digest risks exceeds that of other investors. 
 

Challenges Faced by HNIs and Ultra HNIs in Investing
 

Let us look at the critical challenges of high-net-worth individuals in stock market investing. 
 

Liquidity Management 

HNIs and ultra-HNIs have higher liquidity requirements than other investors. Investing too much in the stock market can lead to liquidity issues when there is an immediate cash requirement. 
 

Tax Optimisation 

With their assets spanning different classes, such as trusts and listed equities, tax planning and compliance with the regulations can become a considerable challenge. 
 

Intergenerational Wealth Transfers

Smooth transfer of wealth to the heirs with the proper control and tax structuring becomes a challenge for these investors. Most importantly, long-term capital gains are taxable in India. You are required to shed one-tenth of the gains made in your portfolio. While the exact transfer of your capital to your natural heirs might not be taxed, the resultant tax profile they end up landing could erode your wealth.  
 

Changing Tax Codes 

Tax treatment of HNIs and ultra-HNIs remains a contention in Indian politics. With sharp divisions between society and politicians regarding taxation, such individuals always fear the hanging sword of increased taxes on their wealth. Traditionally, it has been easy to find loopholes in taxation codes. But, with a robust policy framework now in place in India, it can be challenging for such individuals to prevent the erosion of their wealth.
 

Reputation Management 

Unsavory investment decisions, actions, and associations of such individuals can negatively impact their reputation and erode public confidence and trust in their business.
 

Family Politics 

Disagreements between family members of such individuals can lead to suboptimal investment decisions. Unnecessary delays can also ruin the market timing scenario in such cases.  
 

Adopting The Right Investment Framework 

Given their sizable assets, it is always advisable to invest in reputed investment frameworks. While many financial frameworks assist such individuals in stock market investments, finding the right match for the particular portfolio is critical. Finding the proper investment framework is one of investors' most significant challenges. 
 

Inflation Concerns 

While the very purpose of stock market investments is to minimise macroeconomic shocks that normally exist in traditional financial markets, HNIs and ultra-HNIs are individuals set to lose a significant chunk of their wealth to macroeconomic shocks if their portfolio is not well diversified enough. Such individuals should worry if their portfolio does not include gold. Including gold in the portfolio in a sizable amount helps beat inflationary pressures on the portfolio in the long run. 

In summary, financial management of the portfolios of high—and ultra-high-net-worth individuals involves significant challenges. However, several factors impact portfolio management and the challenges faced in managing the wealth of these individuals are directly proportional to the size of their portfolios.
 

Conclusion 

High-net-worth and ultra-high-net-worth individuals possess sizable amounts of assets in their portfolios. In this article, we’ve highlighted that the challenges such individuals face in managing their portfolios significantly differ from those faced by ordinary individuals. It can not be generalised that great wealth comes with excellent stock market challenges, but it also does not get any easier for them to manage their wealth.