Where are HNI Investors Deploying Their Money?

Wealth has various forms, even though it is largely associated with being rich. However, who is considered rich can vary based on individual definitions. One can own a fancy 18th-century castle in the middle of a desert without a penny to buy food. In the world of finance, wealth and the wealthy are identified by their investible money or money that can be used to buy other things or invest. Material possessions like a property that may not be easily monetized may be part of one’s wealth but may not classify a person or a family as high net-worth.

Historically, wealth has been associated with property in the form of land and precious metals and stones like gold and diamonds. Indeed, those with more money than required to cover their daily expenses used to indulge in these two assets before adding a third one in the form of lending or debt.

In the modern world, high net-worth individuals (HNIs) have seen the addition of various other modes of investing, chiefly equity. The development of stock markets provided a new channel to invest money. The number of options for HNIs has only increased over time. What lies at the center of this is the need to diversify and spread the risk of investing in a single asset. Different HNIs pick and choose an investment strategy with multiple asset classes, depending on their risk appetite, which in turn is also linked with their stage in the lifecycle and lifestyle.

Real Assets

Property remains a key part of a wealthy portfolio even today. While earlier, it was land and land banks that drove interest, now HNIs look at various other factors such as income-generating real assets like commercial property via both direct and indirect bets through real estate investment trusts (REITs) and infrastructure trusts. HNIs are not just looking to buy properties within the country but also invest in other markets such as Dubai and London. Indeed, in certain markets like Dubai, Indian-origin HNIs have become the biggest purchasers of property.
 

Mutual Funds

This is the first port of call for HNIs looking at real growth of money for the future. Earlier, bulk of the money was parked in debt-oriented mutual funds that promised to provide better returns than a plain bank fixed deposit, albeit with some additional risk. With the development of the capital market and various equity-oriented schemes that offered much bigger gains, HNIs have embraced this asset. As of March 2013, HNIs accounted for Rs 1.9 trillion, or just over a quarter of the total AUM under mutual funds that stood at Rs 7 trillion ($130 billion) at that time. This has grown by leaps and bounds. As of March 31, 2024, HNIs' exposure to mutual funds has risen over tenfold to Rs 20 trillion, or more than a third of the total of Rs 55 trillion.
 

Equities

Direct equity investments, though not everyone’s cup of tea, are also something that HNIs have been actively pursuing. Many HNIs use PMS providers and wealth managers to engage on their behalf while a few choose to dabble in the market on their own. Even as their total holding in the market has moved up and down at different points in time, early this year it had dipped. The share of HNIs, or those with more than Rs 2 lakh shareholding in a company listed on NSE, decreased slightly to 2% as on March 31, 2024, from 2.06% on December 31, 2023, according to Prime Database. In that quarter, HNIs upped their stake in 729 companies compared to 994 companies where they decreased their holding. Indeed, HNIs were the only set of investors apart from promoters of companies themselves that sold shares of more companies than the number of companies where they placed additional bets.

Alternatives

This is the new class of securities created a little over a decade ago, largely focused on HNIs given the minimum threshold of investment and net worth requirement. The success stories in the startup world and selectively in the private equity space have attracted hordes of HNIs to add alternatives to their portfolio basket. HNIs are betting on sub-asset classes such as angel funds, infrastructure funds, social impact funds, venture capital, private equity, private credit, and public market-oriented hedge funds. This has become a big force, with total money committed by investors ballooning to $130 billion as of March 2024. Over half of this is from domestic investors. Given that corporates and institutions are yet to warm up to the asset class due to its illiquid nature, a good chunk of this money is coming from HNIs.

Lure of Old & New

HNIs who are more adventurous or have a particular eye for detail have also been engaged in parking some money into antiques and art. This works both as a possession to flaunt at their offices and homes and as potential material to sell at a profit in the future. But this requires a keen eye and personal interest or a skilled advisor. Over the past few years, cryptocurrencies and NFTs have also come up as new age curios. However, the volatile nature of these assets has turned some HNIs cautious about investing in them, as some have burnt their fingers in such bets.
 

Conclusion

HNIs have a variety of options when it comes to deploying their money, from traditional investments like real estate and mutual funds to more modern alternatives like private equity and cryptocurrencies. The key lies in diversification and choosing the right investment strategy based on individual risk appetite, lifecycle stage, and lifestyle. By understanding these diverse investment avenues, HNIs can make informed decisions to grow and preserve their wealth effectively.