At present we are facing the problem of abundance. There are myriad options available to investors and it has become very difficult to further narrow down what would work for a specific individual or group, especially for an investor with a surplus above. ₹2 crores who are considered high net worth persons in India.
Given this conundrum, here are some possibilities to make it effective and easy for high-net-worth individuals (HNIs) to plan reliable investments over the long term.
Equity and Fixed Income:
It sounds like an investment option that is very simple and clear. Sometimes, it is the most basic strategy that has the potential to build and build wealth many times over. Equity and debt asset classes can be efficiently leveraged to protect capital while generating significant returns.
PMS will generate alpha and ETF to generate beta:
Equity is not run only for direct stock investments. The right permutation and combination of stock and equity market instruments can help generate better returns and provide some degree of capital protection.
PMS being such an investment vehicle offers many benefits such as owning a quality portfolio, transparent fee structure, customized and differentiated portfolio where investors can invest according to their risk appetite with the help of portfolio manager. Registering with a Portfolio Management Service (PMS) can help build alpha by hiring a skilled and experienced professional whose sole aim is to generate great returns.
Additionally, investing in market-related instruments such as ETFs that track indices can provide a range of implied volatility in the stock markets. Flexibility in trading, no maturity period and liquidity are the favorable points which make it a cost effective investment avenue for HNIs.
Fixed Income or Structured Debt Instrument:
Conservation of capital is as important as the growth of wealth. Debt instruments like government and corporate bonds, certificates of deposits (CDs), money market funds, etc., are focused on the conservation of capital and income. It helps in overall portfolio diversification by offsetting the risk of losses due to volatility in the equity market. Often, it is observed that the prices of stocks and bonds move separately and hence the correlation is low. HNIs can invest in debt instruments to hedge the downside risk of their portfolio.
Similarly, investing in structured products as opposed to plain vanilla options can provide the relative stability of a loan while potentially providing higher returns. Structured products are constructed to suit the risk and goals of the investor who invests in assets such as bonds, equities, currency or interest, ETFs, indices and derivatives.
Real estate such as:
Investments in physical, tangible assets like real estate have always been a favorite of HNIs. They should remain a part of one’s overall portfolio for long-term wealth creation. By investing in a REIT, one is not only creating an asset that will grow over time, but it also has the potential to deliver consistent cash flow in the form of rental yields.
The interpretation of owning real estate such as real estate has certainly changed in today’s era, with instruments such as real estate investment trusts (REITs) and fractal ownership in premium properties slowly gaining ground.
Options like gold, unlisted equities, and others:
Apart from those mentioned above, HNIs have many other non-traditional investment options that they can explore- such as investing in gold, unlisted equities, alternative investment funds (AIFs), venture capital, private equity, etc. Investing in an alternative asset class helps. In diversification of portfolios due to low correlation with traditional asset classes.
Each of the above asset classes has a unique quality or aspect that can be leveraged, to increase the viability of the overall portfolio and achieve better risk-adjusted returns over the long term.
Mrinal Singh is the CIO and CEO of Incred AMC
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