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and the considerable return on investments. “I would rather invest in my own technology-related business or real estate.O.P. And so has their wealth. For example. have also made people wealthy. This is probably because the primary motive. the Self-made. perhaps. This is followed by investment in real estate (63 per cent of the respondents). behind investment (including. and not protection. such as information technology and telecom. when queried about this perceived risk aversion. Once you . social security and regular income. inherited and landed assets dominated the wealth landscape. and 44 per cent of the Professionals. India . Moreover. the number of ultra HNIs in India has leapfrogged in the last decade or so. shipping. “It depends on what stage you are in your life cycle. for 73. in accordance with the requirement. It is not only in the perceived boom areas. enterprise culture is a more recent phenomenon. In India. and the Professionals – save nearly a fifth of their total income. With the safety of their personal wealth paramount in the minds. 72 per cent of the respondents cited it as a key influence on wealth accumulation.5 per cent of the Inheritors. why should I put money in something where I have no control.” one of our respondents commented. The difference among them is only in terms of degree.INVESTMENT Driven by a slew of factors. investment in land and properties has been the key source of wealth. luxury lifestyle and marriage. the ultra HNIs uniformly exercise a far greater degree of caution when it comes to their investments compared with the kind of risks they are willing to undertake in their businesses. is the chief objective. varies. it is enterprise and business ownership that have emerged as the dominant source of riches.Kotak Wealth & CRISIL Research It is interesting to note from our survey that the key source of personal wealth is success in primary business. if your kids are small. The choice of asset classes. Earlier. quite unlike in business. where growth. when it comes to risk aversion. strong corporate performances. tax planning aspects) is legacy for the family. you invest mainly because you have to provide for their education. a businessman willing to bet millions of dollars on purchasing a failing business is unwilling to show the same gumption when it comes to investing his own wealth in riskier asset classes. it is but natural that many of the ultra HNIs reiterate their desire to maintain close control over their assets. pharmaceuticals. and invest close to another one-fifth to multiply their personal wealth. all the three ultra HNI profiles – the Inheritors. 58 per cent of the Self-made. And there is a tie for the third spot with 43 per cent of the respondents each stating that inheritance and investment in equity were the next key influencers for wealth creation. Some of the new ultra HNIs are those who have sold businesses and never felt the need to work again. But our survey on investment patterns revealed a very interesting dichotomy: as a class. buoyant capital markets. Not surprisingly. in view of the stated primacy they attribute to protection of wealth. having grown in the high double digits over the past 5 years due to ESOPs and other innovative salary structures. Around 78 per cent of the Inheritors and 91 per cent of the Self-made There is another aspect that sets the ultra HNIs apart from the average individual. manufacturing which are some of the most traditional industries in the world. cited success in primary business as the major factor. today. 40 | T. Even though they may be supremely wealthy by normal standards. our survey found. that big money is being made. So. The average rise in the income of ultra HNIs has been much stronger than that of an average Indian. though. ultra HNIs carry their unquenchable (corporate) thirst for growing their business into their personal wealth too. growth comes later. of course.
India .P. business ownership and a successful career have emerged as the dominant sources of wealth Inheritors Self-made Professionals 100 Inheritance / Rich benefactor Success in primary business 88 103 29 Investing in land and property 83 65 50 Investing in equity 55 33 59 By diversifying into different / allied business 35 40 13 Income through job / salary 32 8 97 Consistent saving in low-risk investments 27 15 17 Income from sale of business Agricultural / Tea plantation income 23 33 13 17 5 3 8 3 3 4 Lottery / Gambling Others ESOPs in the company 3 67 Note: Indexed to Inheritance income for the Inheritors Source: T.Enterprise.O.P.O.Kotak Wealth & CRISIL Research | 41 . India .Kotak Wealth & CRISIL Research T.
India . financial planners and 19. deploy the lowest proportion of 6. India .Kotak Wealth & CRISIL Research private financial advisors and take their advice. Inheritors interviewed for the survey indicated that they distribute their investments across asset classes. the ultra HNI is generally willing to take more risks in the hope of better returns. They have teams of wealth managers. structured products and derivatives. As they are more comfortable with people rather than organisations. and Source: T.are comfortable having saved enough.Kotak Wealth & CRISIL Research . In terms of being involved in planning their investments.O.4% 20% Expenses Of the three. followed by the Professionals and the Inheritors. Most ultra HNIs would rather invest in their own business rather than in instruments where they have no control. possibly due to increased exposure to a greater variety 28. Vis-à-vis others. This is not to suggest that ultra HNIs are conservative when it comes to investing. private equity. while both the Inheritors and the Self-made deploy around 19 per cent of their income on investments. then your goals are totally Ultra HNIs invest one-fifth of their income for growing their wealth But they put a greater proportion back into their business to fuel the engine of wealth creation.4% Investment in primary business of investment products. Probably because they are very comfortable relying on professionals to run and grow their business. such as hedge funds. different. This stems from a desire for a sense of control. chartered accountants.3% Investment for growing personal wealth lawyers to manage their investment portfolios. the Self-made develop personal equations with specific chartered accountants. In recent times. the Inheritors readily take professional advice on their investments. in planning their investments.9% Others their income on investments to grow their wealth.7% Savings about 30 per cent. 22.P. as noted contextually earlier.P. the Professionals deploy around 22 per cent. the Inheritors tend to protect their wealth by diversifying their holdings. with a greater emphasis on real estate – about 40 per cent – and equity – 19. According to our Charity / Philanthropy market research. The difference. Far from it. The Self-made. wealth managers.3% 3. More ultra HNIs are also now investing in vehicles that are generally considered to be at the riskier end of the financial spectrum. among the three types. 42 | T. the Self-made are also likely to be the most involved.O.” one of those surveyed elaborated. is only in terms of degree. many ultra HNIs have displayed the propensity to be more sophisticated in terms of the breadth of their investments. on the other hand.
Our survey showed interesting trends in the investment preferences and future investment plans of ultra HNIs.” one Self-made ultra HNI said. apart from apartments and villas.0% 39. such as hedge funds.1 per cent in equity. commercial buildings and agricultural land and plantations.O.4% In terms of the current investment pattern of ultra HNIs. For the Professionals. The Self-made largely invest only in instruments that they best understand. The Inheritors have a distinct preference for real estate with 40 per cent of their investments in this asset class.Compared with the others. they are likely to have the highest proportion of investments on alternate assets such as private equity stake in businesses.2 per cent of the investable surplus is deployed in real estate. and derivatives. private equity. India . Their tendency to take measured risks is also apparent in their choice of real estate assets – a mix of real estate assets such as holiday homes. a pattern which they share with the Self-made. so property is where one should invest.O.1% 8. Source: T. This is markedly different from the investment pattern of the Self-made and the Professionals who T.5% 11. followed by 33.2 per cent in alternate assets. 20. social security and regular income are key investing goals. the Self-made also tend to take calculated risks with their investments. The remainder onefourth is invested in real estate.3% 39. The survey compared the assets in which respondents are currently invested in with their investments over the past one year and their planned investment over the next one year. India . they balance such investments with relatively less risky instruments such as fixed deposits and insurance policies.8% Debt Equity 31. They route three-fourths of their investments into financial assets. 1) 2) There is expected to be a cyclical move away from equities.P. For instance. They have the largest proportion of investments in equity. 37.9% 31.Kotak Wealth & CRISIL Research | 43 . However.3% 18.4 per cent in debt and the balance 9.8% 25.Kotak Wealth & CRISIL Research Real estate Alternate assets 8. Two trends were noteworthy. “God has stopped making land. our survey reveals.1% 19.7% Professionals put the largest chunk of investments in financial assets Inheritors Self-made Professionals 40.P. Respondents expressed a desire to increase their exposure towards alternate or less traditional asset classes. primarily equity and debt.1% 26.
even if they do not quite understand them.9% Alternate assets Return Wealth advisory Private equity 9.8% Around 55 per cent of the interviewees said they were comfortable 37. the Self-made have pruned their real estate investments significantly from 42.P.Kotak Wealth & CRISIL Research 44 | T.2% Debt Mutual fund Equity Portfolio management services 22. but ultra HNIs can spot an opportunity if they see one. Hence. Our survey also suggests that regional biases to investment still remain. Land and property hold greater attraction for ultra HNIs in Delhi Delhi Mumbai Bengaluru 32. In terms of the investment pattern a year ago.P.2% Equity 32. such as estate planning or retirement planning.3% Alternate assets 21.Kotak Wealth & CRISIL Research .2% Equity Cash Source: T. India . private equity.Kotak Wealth & CRISIL Research Risk Source: T. Wealthy investors in Delhi and Bengaluru are more focused on amassing portfolios of property (Delhi .4% Debt Debt 23. India . to their wealth managers.currently have just a little over a quarter of their investments in real estate.O. therefore. only around half of the respondents professed confidence in their knowledge and understanding of them. whereas the ultra HNIs in Mumbai are far more likely to put money in equity (37.P.1% with leaving the more mainstream aspects of personal finance.0% Real estate 50.8% Debt Fixed deposit Bullion Real estate 17. Unsurprisingly. derivatives and the like.2% Equity 37. Despite this appetite for alternate asset classes. the growing popularity of hedge funds.7 per cent then to 26.8% Alternate assets 7.5 per cent currently. Risk-return profile of asset classes Real estate Real estate 8.O.50 per cent of ultra HNI investment is in real estate followed by Bengaluru at 37 per cent) as indicated by their current investment pattern. ultra HNIs of all hues have been drawn to less traditional asset classes. given the proliferation of such products in recent times. India .O.2 per cent of ultra HNI investment in equity). Risk averse they well may be.
7% Chartered accountants 34.2% Others 8.12 P 55.1% Family office Note: Ultra HNIs rely on a multi-profile team of advisors. India . or tax consultants.5% 9. More interestingly. using local T. India .4% Private financial advisors Debt 20.O.0% Wealth managers 50.P.4% 18.Kotak Wealth & CRISIL Research | 45 . Another reason is diversification of risk. Adding some private equity.P.1% Media 13.7% Friends / Family 39. most ultra HNIs invested in a few asset classes.Kotak Wealth & CRISIL Research Equity 31.0% CFO 12. chartered accountants.2% 40.2% 42. hedge fund or derivative exposure to a portfolio can help to diversify overall levels of risk by spreading it across a wider range of assets.Ultra HNIs investments in alternate assets to increase Investment advice from professional sources is most sought after 2009-10 E 2010-11 E 2011.4% Lawyers 6.3% 11.2% Broker 9.O. Previously. E: Estimated P: Projected Source: T. traditionally. The percentage values of the various categories therefore do not add up to 100%. these specific financial instruments are expected to deliver better financial returns and help cushion investors against volatility in the market.6% 33.P. Also.5% minimum investment that is sufficiently high to restrict them to the top wealth brackets.1% 37. Source: T. the wealth management market in India was served by those that cross-sold mutual funds and banking products to the rich.2% 19.1% 30. One reason for this is structural – most of these investments carry a Real estate 38.8% 20.1% brokers. India .Kotak Wealth & CRISIL Research This lack of knowledge is perhaps the reason for the increased willingness to seek advice from professional investment managers.O.4% Self Alternate assets 9.
philanthropy seems to be only a moderate motivation for investing. You would want your ideals.” one of the Inheritors commented. the desire to preserve wealth for the future and transfer wealth to the family was fairly universal. Our survey suggests that the motivation to ensure financial security for children is the highest among the Self-made. “My company is a professionally run firm. Further. For the ultra HNIs who have inherited from a long lineage within their family. While one said. the Professionals are more likely to shy away from passing wealth to their children.Blood thicker than water? In an era in which entrepreneurship and enterprise are becoming increasingly well-trodden routes to wealth. Others were not quite so certain. As a result. On the other hand.” one Professional said. India . our survey indicates. the tendency to shy from public recognition and a clear desire for privacy characterises these benefactors. teach someone how to fish. Close to 29 per cent of the professionals stated philanthropic causes as a goal for wealth creation and protection. This is followed by social security (53 per cent of the respondents) and the need for regular income (47. High profile cases aside. “Having put in so much hard work on building something. “It is important in case of a family business. you need to know who will use it finally.” opined one. they can always hire a new CEO.” he quipped. philanthropy has often been based more around giving time rather than money. 46 | T. instead they are more apt to spend it during their lifetime.6 per cent of them agreed that leaving a legacy for the family and kids is an important motivation for them. While a minority contended otherwise.P. believe that it is not a good idea to leave large sums of money to dependents. For this group. legacy to continue with your blood only. This perhaps has to do with the fact that they are the first-generation rich.” another individual was more forthright. and in which ultra HNIs such as Warren Buffett and Bill Gates have decided to leave the vast majority of their estate to charitable causes. “I believe that when you are comfortable you should ensure a few more are also comfortable. Our survey suggests that less than 15 per cent of the ultra HNIs who have inherited wealth would want to give back to society. Instead of giving a fish to eat. The Professionals. however. you will be feeding him for life. with 65 per cent of them stating it as one of the prime motives for them to create wealth. they feel (and are often legally) restricted with what they can do with it. “I don’t believe in donating. they give very little away. and are increasingly keen to apply their business acumen (and wealth) to the charity sector. My wife though does a lot of charity. it may be tempting to conclude that the desire to leave wealth for the next generation is becoming less prominent. Slightly under 60 per cent of the interviewees agreed that they want to make sure they have enough money so that they can pass it to the next generation. I don’t believe in it.Kotak Wealth & CRISIL Research . only 47. And it probably always will be. Some of them had pretty strong views.O.5 per cent). Such temptation. is misplaced.
5% Charity 14.3% Regular income 37. India .Legacy and social security are the two most important goals of wealth creation for ultra HNIs as a whole Inheritors Self-made Professionals Overall Legacy for the family 60.3% 47.0% 33.7% 70.0% 28. Source: T.O.2% Note : As the respondents gave multiple responses.O.P.0% 47.7% 65.6% 59.8% Social security 54.6% 17.5% 61.Kotak Wealth & CRISIL Research | 47 .Kotak Wealth & CRISIL Research T.1% 47. India .8% 15.9% 53. the percentage values do not add up to 100%.P.