As advisors, you will agree that managing clients’ wealth is not easy. And to properly manage a vast amount of wealth, you really need to be on top of your game.
To make the task a bit easier we have listed down few investment options that you can explore on behalf of your HNI clients.
In recent times, wealthy individuals have been exploring alternative investment solutions in order to diversify. These are satellite products in your client’s portfolio. The main purpose of these investments is to develop an alternative source of income for your clients. These investments shield your clients' wealth during negative market movements.
Investing in art is still at a nascent stage in India. A sought after piece can earn the seller a huge profit. However, you need to realise that public taste is tough to predict. Thus, it is difficult to sell them quickly for profit. Additionally, preserving and safeguarding paintings requires significant expense. Your client needs to understand the costs and unpredictability before investing.
You need to ensure that your clients purchase wines only from reputable wine brokers as the wine market is difficult to understand and there aren't any Indian wineries known for fine wines. On the plus side, wine increases in value with time thus it is an asset investors can hold on to. However, wine storage incurs a sizeable expense. You need to educate your clients about the costs and ask them to only invest a small amount in fine wines unless they understand the market.
Financing small budget or art movies is another option for HNIs as new filmmakers and artsy topics require financers. Since, the shooting and production tends to wrap up quickly, the investment holding period is quite short, ranging between one to two years. However, the key concern is return on investment. Unless the movie becomes a hit, there is a possibility of loss of capital in domestic film investments. However, in case of a hit production the returns can be handsome as they offer profit share in the range of 60-70%. Currently, there are digital platforms and cinema fund, which connect investors to content producers. Advisors should note that film investing is a high-risk-high-return bet.
· Structured products
Another popular investment product for HNIs is structured products offered by banks and large financial institutions. These tend to have an inbuilt derivative component as a hedging tool. They follow a variety of strategies. As an advisor, you need to understand the strategy before recommending it to your clients
· Foreign investments
After RBI permitted foreign market investments up to US $250,000 (approx. Rs.1.7 crore) advisors can consider foreign investments for geographical diversification of their client’s assets. However, be warned the foreign investment process can be tedious. At the least, you will need to open a broking account in the foreign country or open an account with an Indian bank having a tie-up with foreign brokers. Additionally, you need to evaluate tax implications of the earning on foreign investments both in the country of investment and India. It may be wiser to explore foreign funds launched by MFs in India for geographical diversification. Moreover, you need to understand that though your client may diversify country risk he/she adds currency risk to the portfolio by foreign investment.
These are specialised funds investing in uncommon securities or following a specialised strategy. They charge investors fund management fees (generally up to 2%) and performance fees if the scheme delivers returns above hurdle rate. These schemes tend to have a lock-in period, though investors are permitted to sell them in the secondary market, demand is non-existent.
The main draw of PMS is that they run customised investor portfolio. Thus they structure the portfolio as per investor's risk appetite. The charges of portfolio management service are like that of AIFs. To summarise, there are a variety of investment options for HNI clients. However, what one needs to understand while recommending exotic investment avenues is that there is an element of risk involved. Only if the client is comfortable with the risk and finances can handle a loss should one recommend these products to clients.
To summarise, there are a variety of investment options for HNI clients. However, what one needs to understand while recommending exotic investment avenues is that there is an element of risk involved. Only if the client is comfortable with the risk and finances can handle a loss should one recommend these products to clients.