Wealth managers suggest alternatives

With the uncertain asset market, protection of capital's needed; 91-day T-Bills, other forms of debt being advised

The current reign of uncertainty across asset classes has wealth managers scrambling for ways to help their clients protect capital. One such way that has emerged for the extremely risk-averse is to invest money in government treasury bills for three months.

A wealth management firm promoted by a domestic financial services company is advising its high net worth individual (HNI) clientele to directly buy government securities with 91-day tenure, which offer rates of around 11 per cent. These direct investments generally come with a higher ticket-size. This is being addressed by the wealth manager, by aggregating clients’ investments and investing these in a lump-sum.

Edelweiss Private Wealth Management is putting together tranches aggregating Rs 10-20 crore worth of HNI capital to put through such transactions, according to Anshu Kapoor, head of the private wealth division at Edelweiss Securities. “We are talking to HNIs and trying to make them more aware of the option,” he said. He said investments of a lesser size, especially lower than Rs 50 lakh, tend to be illiquid.

SAFETY IN T-BILLS?

• HNIs being pitched direct investment in T-bills of three months as safe haven
• 91 day T-Bills with returns of 11 per cent
• Investments being aggregated, because of higher ticket size requirements
• Others say that Investment not tax-efficient, suggest longer tenure paper

The Sensex has lost about 1,000 points since the month began. Gold has been consistently volatile, falling from a high of Rs 32,500 for 10g to a low of Rs 25,130 over a year. It closed at Rs 31,375 for 10g on Thursday. Debt funds have been uncertain, with even liquid funds giving negative returns recently, after the Reserve Bank of India clamped on liquidity.

“Even fixed income has been volatile in today’s market, with drawdowns in mutual fund products…what was thought to be a safe investment has not turned out to be so,” says Kapoor.

Meanwhile, investing in 91-day paper and holding it till maturity would mean investors could get a return with their capital guaranteed by the government. The yield on 91-day T-Bills was 11.2 per cent on Thursday.

However, other advisors are rooting for more tax-efficient alternatives or suggest longer tenure debt. Rajesh Saluja, chief executive officer at ASK Wealth Advisors, says investment through mutual funds is more tax-efficient. Investors pay a dividend distribution tax which is lower than the levy on holding gilts directly. “There are a lot of debt funds which offer a three-month fixed investment, that are more tax- efficient. We are advising clients to look at short-term bond funds and at basic fixed maturity plans,” he said.  

Karthik Jhaveri, director, Transcend Consulting (India), suggested longer tenure paper might make more sense. “It would make sense to buy good quality debt with a tenure of two or three years. This would allow them to lock in the higher interest rates prevailing currently and also benefit from any rate cut, which could very well happen after six months or so,” he said.