Where the rich invest

Kotak Wealth recently launched its sixth edition of Top of the Pyramid Report, which comprised a detailed market survey of 225 ultra high networth individuals, or UHNIs, by Feedback Consulting. The survey took place between January 2016 and March 2016, over 12 cities, in the form of face-to-face interviews.

An ultra high networth household, or UHNH, is one with a minimum net worth of Rs 250 million, mapped over 10 years.

The survey revealed that UHNHs increased 7% to 1,46,600 in FY16, from around 1,37,100 last year. Interestingly, the average age of UHNIs is reducing, nearly half are below 40 years of age.

Where the money goes….

Around 55% of the income is allocated into savings and investments, 40% are expenses and 5% goes to charity.

• Wearables, jewellery and apparel continue to remain top spending category; Passion and prestige driving investments in art and paintings.

• There has also been increasing awareness about art among the ultra HNIs and they are increasingly treating art and paintings as an integral component of their portfolios. Even so, for 68% of ultra HNIs, art and paintings are impulse purchases; only 32% engage in research before buying.

• Another area of passion for the ultra HNIs continues to be collectibles. They do not leave any stone unturned to collect items that add to the grandeur of their living rooms, office spaces, or atriums. Passion is a major factor in pursuing collectibles – 70% of ultra HNIs confessed that their passion for owning a collection of exotic and interesting items drove their purchases. Collectibles include electronic gadgets, luxury/sports cars and bikes, art/paintings, antiques, stamps, and other memorabilia.

• UHNI investments across asset classes in FY16:
  1. Equity - 39%
  2. Real estate – 28%
  3. Debt - 22%
  4. Alternate investments - 11%

• Around 72% UHNIs invest in commodities, gold being the most popular. Investment in gold varies – from jewellery, coins, bars, to ETFs. Gold certificates and bonds are the latest additions to this list. Apart from gold, 19% ultra HNIs allocate funds to silver and 6% invest in energy commodities, which is the next emerging sector globally. In line with this global trend, commodity exchanges in India are also offering energy products as a trading opportunity to which the ultra HNIs are warming up and taking restricted exposure.

1. Gold - 59%
2. Silver – 19%
3. Energy - 6%
4. Agri-based – 4%
5. Metals – 3%
6. Others – 9%

• Succession planning critical for 98% of UHNIs: Wills are the most common instrument of choice, Trusts gaining traction

• 44% of UHNIs have exposure to impact investments. Impact investments target companies catering to basic needs in an effective way, which would otherwise have remained unfulfilled. The key drivers are sector attractiveness, stability of return, social impact, energy preservation, and environmental impact. The preferences are:
  1. Financial services – 85%
  2. Clean energy – 82%
  3. Affordable housing/sanitation – 82%
  4. Affordable health – 64%
  5. Affordable education – 49%
  6. Rural supply chain – 49%
  7. Technology services targeting BoP space – 47%

Looking ahead…..

The report has projected that the number of UHNHs will increase to 294,000 by FY21 with a combined net worth of Rs 319 trillion driven by new UHNHs from emerging sectors and new avenues for investments that give higher returns.

Smaller towns and emerging cities will also contribute to this growth in the number of UHNIs and their wealth. While the four metros continued to hold 55% of this group, non-metro cities such as Bengaluru, Pune, Ahmedabad, Hyderabad, Nagpur and Ludhiana contributed to 17% to the Indian UHNI population. Other smaller centres and towns such as Chandigarh, Surat, Jaipur, Lucknow, Kanpur, Jamshedpur, Amritsar, Raipur, Indore and Aurangabad contributed to the rest.