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How the wealth management industry is evolving with changing customer needs

The Wealth Management services industry in India is still young but has been growing with the rise in the population of high networth individuals (HNIs) and ultra high networth individuals (UHNIs).

Rising per capita income, aided by growth in the Indian economy and increasing urbanisation, is also aiding the growth of the wealth management industry.

The affluent middle-class population is growing, and per the estimates of the World Economic Forum, 80 percent of India’s population is expected to be in the middle-class segment by 2030, up from about 50 percent in 2019.

According to IBEF (Indian Brand Equity Foundation, an Indian government export promotion agency), the HNI population in India is expected to grow by 75 percent, from 3.50 lakh in 2020 to 6.11 lakh in 2025. The number of UHNIs in India is expected to increase by 63 percent, from 6,884 in 2020 to 11,198 in 2025.

Latest Trends in India's wealth management industry

There are several interesting investing trends that have either emerged or gained momentum over the last year.

One is the increasing interest in international investments, especially in purchasing real estate abroad. “The increase in the Liberalised Remittance Scheme (LRS) limit in India to $250,000 per Financial Year (April-March) and the transparency in developed countries’ real estate have made it easier for individuals to invest in international real estate,” said Vinay Ahuja, Executive Director, IIFL Wealth.

The other trend that has emerged is an inclination to participate in the tech startup space. “Investment in unlisted companies has become an attractive option for investors with a higher risk appetite and a long-term horizon,” said Ahuja.

HNIs also migrated to privately managed portfolios through AIFs (alternative investment funds) to achieve alpha while safeguarding their overall wealth. This was evident by the growth of AIF commitment values exceeding INR 5 lakh crore, a leap of over 20 percent (YTD).

Digitisation in the wealth management industry is enabling wealth managers to reduce costs, improve portfolio analysis, and provide clients with a seamless and holistic experience.

“Winning wealth management firms will be able to successfully straddle the human and technology element of wealth management,” said Ahuja of IIFL Wealth.

The other growth driver will be the growing need for innovative investment products based on individual needs, which can help improve risk-adjusted returns.

Digital Wealth Management

A key element in the business of wealth management is trust. “Relationships with clients are fostered over a long period, often running deep and through generations. Thus, people will always remain in a position of strength in this industry,” Ahuja told Moneycontrol.

At the same time, he added, the future of the wealth industry is likely to be bionic, where humans optimally harness digital solutions to add value to customers by enhancing processes, analysis and communication.

WealthTech businesses are disrupting the way HNIs invest by increasing transparency, cost-effectiveness, knowledge dissemination, and access to a larger range of investment products.

Product Preferences

Traditional investment avenues such as fixed deposits, direct equities or pooled vehicles like mutual funds and physical assets like gold and real estate have always been used by HNIs as effective investment tools for many years now.

HNI portfolios have always had high exposure to real estate investments. However, over the last few years, it has been observed that such exposure is reducing. “While real estate continues to hold sway, the vehicle of allocation is changing. Instead of direct real estate investments, HNIs are increasingly investing in Real Estate Investment Trusts (REITs) to gain relevant exposure,” said Ahuja.

InvITs are an attractive vehicle to invest in infrastructure assets. The Liberalised Remittance Scheme and rupee denominated funds of funds are an attractive way to diversify the portfolio.

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