Ultra HNIs look to cut risk, stick to FDs

With the economic recovery still under pressure, the country’s rich prefer to stick to low-risk products such as fixed deposits to protect their capital. According to a report by Kotak Wealth, the investment approach of ultra high networth individuals (HNIs) in FY-13 was one of risk aversion and capital protection.

'Despite the marginal improvement in business confidence, many still did not feel confident enough about the economic climate. Low-risk instruments such as fixed deposits continued to be popular with ultra HNIs,' said the report titled ‘A Cautious Celebration’ for the fiscal 2012-13 and authored by Kotak Wealth and CRISIL Research.

'The level of pessimism among investors has been very high, especially in the last 7-8 months. There is lesser (money) available to invest, that much is clear,' said Jaideep Hansraj, business head at Kotak Wealth Management.

During 2012-13, the allocation to financial instruments for investment purposes as part of the total income declined to 16% from 24.1% in the previous fiscal. Most of the ultra HNIs preferred to plough the money back into their own businesses. Investment into primary business increased to 31.2% as opposed to 24.2% last year. Savings of these individuals remained more or less the same at around 16%.

The fiscal also saw a near 35% increase in the number of ultra HNIs rose to 109,000 from 81,000 in the previous fiscal. Of these, 46% belonged to the non-metro cities. The total networth of these investors stood at Rs 86 trillion at the end of the fiscal, up from Rs 65 trillion earlier.  

'About 34% of this has come from return on investments and wealth. The new additions to the ultra HNIs list account for about 24% of the total networth,' said Mukesh Agarwal, president at CRISIL Research.

Real estate continued to be the biggest investment opportunity for these investors, particularly branded luxury homes. While the location of the real estate property was seen as the most important aspect, the association of a world-class brand with the property was also seen as a big draw for these investors.

'The stature of the architect or the developer is particularly important for the ultra HNI if they are purchasing a readymade villa. European designers, especially Italian, are some of the most sought-after by Indian HNIs,' the report said.

Nearly half of the inheritors and the self-made entrepreneurs said that their luxury homes should be in an upmarket locality within the city. About 35% of the professionals wanted it to be in an upmarket area, but outside the city limits, while 20% preferred an upmarket area within the city limits.

A comparison of the demographics of investors across regions showed that investors in larger metros like Mumbai and Delhi were more risk averse than those in metros like Kolkata and Chennai. Among non-metros, almost 50% of respondents in Ahmedabad and Lucknow said that they followed an opportunistic approach despite volatile market conditions.