Do HNIs and Ultra HNIs Focus on Mutual Fund Investment at all?

For decades, high-net-worth individuals or HNIs have preferred investing in physical assets, direct stocks, and equity to increase returns. However, with a transformation in the landscape, most HNIs and ultra HNIs are increasingly diverting towards financial assets for wealth creation. In this respect, mutual funds are considered to be the most significant players in this field, offering HNIS and Ultra HNIs incredible opportunities for growth and wealth creation.

In 2023, there were approximately 13,000 ultra-high-net-worth individuals in India, expected to reach 20,000 by 2028. This article will discuss why HNIs and Ultra HNIs should invest in mutual funds.
 

Why Should HNIs and Ultra HNIs Invest in Mutual Funds?

Mutual funds have become an incredible investment opportunity for all types of investors. They offer an excellent scope for wealth creation to HNIs and Ultra HNIs for many reasons.
 

1. Risk Diversification 

One of the most significant advantages of investing in mutual funds for HNIs and Ultra HNIs is risk diversification. To prevent risks, Your fund manager will invest your money in different securities and asset categories, including equity, stocks, debt, gold and other money market instruments.

As mentioned previously, diversification helps to reduce the risk associated with different classes of assets. When a particular security of a mutual fund experiences market turbulence, diversification could be beneficial as others reverse the risks of one asset class.
 

2. Liquidity

Liquidity means you can quickly redeem units of open-ended mutual funds to meet your financial requirements. Upon liquidation, the redemption amount is deposited in your bank account within a few days, depending on the type of scheme. When you need cash in an emergency and don't have enough funds in your bank account, it is impossible to avail yourself of a loan instantly or sell a property. But, if you have invested in mutual funds, you can instantly withdraw the money you deposit.

MFs can easily be converted to cash whenever you need some liquid funding. However, you must ask your fund manager if your MF can be redeemed immediately, as some funds have a lock-in period.
 

3. Professional Management

Investors might need more time, especially HNIs and Ultra HNIs, to perform research to buy individual stocks or bonds. They may also lack the required knowledge about stock trading, so professional money managers could manage their funds. They possess the expertise, experience, tools, and resources to manage investments.

A professional fund manager consistently closely follows market trends and changes the portfolio to meet the investor's financial goals. 

4. Transparency

The portfolio in which the money is invested is disclosed regularly, as per the prescribed regulations. Such transparency allows the investors to make informed decisions. At the end of the business day, mutual fund schemes display their net asset values (NAVs) so the investors remain aware of the value of their investments daily.  

They also publish monthly fund factsheets that contain valuable information about every mutual fund scheme. Investors can review the factsheets to learn about their portfolio holdings. Moreover, they should consider allocation across asset classes, segments, and individual securities.
 

Conclusion

High net-worth individuals (HNIs) and Ultra HNIs seek different investment options to maximise their wealth. From a long-term perspective, mutual funds, as a segment, have become one of the best available options for both HNIs and Ultra HNIs. They should consider this option as it offers liquidity, diversification with respect to various segments available and tax efficiency as compared to other financial products.