Investment landscape for High net worth Individuals (HNIs) has seen key changes in the past decade. TNIE caught up with Manas Chadha, managing director, wealth management India, Lighthouse Canton India, in an interaction with Dipak Mondal details the current investment trends for HNIs. Excerpts:
What are the current trends in investment for HNIs? What are the asset classes that HNIs prefer nowadays?
Entire investing landscape has gone under see-through changes in last 5-7 years. This has also been due to increased regulatory framework coming into play which only expanded entire opportunity set and brought all around acceptance. Today, investing diaspora has expanded meaningfully to unconventional avenues which continue to now garner significant share. Emergence of millennials with deep awareness, investing acumen, agility to move ahead with untapped opportunities and increased acceptance for higher level of risk-reward play has further brought institutional enforcement to overall cause.
To talk about specifics, private market investing has come of age where broader risk-reward spectrum ranges from seed stage investing to last mile growth stage funding – Just before IPO (Pre-IPO opportunities). Savvy clients continue to scout and eye co-investing or independent opportunities as well which is where deeply entrenched pedigree of ours comes into play. Venture debt is an emerging and untapped opportunity which hasn’t been explored to its potential in India.
Emergence of REIT & INVITs has offered another set of uncorrelated opportunities for investors. Some of them have seen the listing which will only continue the democratization and increased awareness we spoke of earlier.
Impact investing & overall mindfulness getting built up around ESG space by UHNI & Family office clients are noteworthy. They are incrementally growing and getting inclined towards more sustainable, responsible investing which compliments either dear to them or otherwise.
Uncorrelated, non-directional and risk mitigating market neutral or long-short strategies are gaining rapid prominence. India now comprises some quality pool of hedge fund managers with varied skill sets and track record and this will continue to be on rise. Valuation conundrum, intermittent volatility and information asymmetry is a hallmark of our capital market unlike the developed world, and that very well paves the path of deep penetration of such strategies.
Do you think investment through Gift City is a good option for HNIs
The GIFT City is increasingly becoming an attractive avenue for high net-worth individuals (HNIs) who are looking for diversification in their investments, tax efficiency, and access to global markets.
By virtue of being a separate jurisdiction, the GIFT City enables investors to access international markets with minimal Indian regulatory constraints. GIFT City also offers significant tax incentives to fund managers and investors. Fund managers have the option to choose any 10 consecutive years out of a total of 15 years for tax exemption on capital gains and interest income. The investors can avail exemption from the levy of STT, GST and stamp duty with respect to transactions carried out on IFSC exchanges.
An area of significant interest for HNIs is the ability to gain overseas exposure via the multiple outbound funds mushrooming in GIFT City. These funds have varied investment strategies across different asset classes and geographies and enable investors to appropriately diversify their portfolios.
Another beneficial aspect about regulations pertaining to GIFT City is that a person resident in India (such as a private limited company or LLP) may make a contribution up to 50% of its net worth (by way of Overseas Portfolio Investment) to an investment fund vehicle set up in GIFT City invest with the objective of offshore investments.
Do you believe disclosure rules in India are becoming too difficult for HNIs investing in overseas funds or through Indian funds?
Regulatory overhaul around increased reporting or vigilance is a structural effort to ensure complete and accurate disclosures of overseas assets, monitor breach of limits and other associated risks. We continue to see regulators making it a balancing act at large. We have GIFT city as one of the mainstream avenues with continued refinement around the broader modalities. The Liberalised Remittance Scheme (LRS) as a primary and dominant landscape has witnessed necessary alignments. Hence, while it’s a work in progress but directional roadmap so far is encouraging. We are likely to witness consistent efforts to bring parity around disclosures & associated best practices with time
How have the recent tax changes in the budget affected HNI investment in India?
The tax reforms in Budget 2024 will indeed reshape the broader investment landscape as we move along, but they also present HNI investors with the opportunity to manoeuvre their investment strategies. These changes are intended to streamline the taxation structure across asset classes and promote more efficient capital allocation.
It is likely to bring greater thrust on critical qualitative aspects like meritocracy of the offering, end objective, its fitment & relevance from an allocation point of view. Despite a slight rise in the capital gains tax on listed equities, investor sentiment remains largely unaffected, underscoring the market’s resilience and appeal.
The removal of indexation benefits on property initially raised concerns within the real estate market. Under the recent proposed changes, the resident Indian (RI) property owners who acquired properties before July 23, 2024, will have the option to either pay a reduced tax rate of 12.5% without indexation or continue with the existing 20% rate that includes indexation benefits. Sales in high-end real estate have largely remained unaffected, with industry experts noting minimal impact on overall transaction volumes. Moreover, this policy shift has contributed to creating a more level playing field across various asset classes.
Notably, the start-up ecosystem is set to play an instrumental role in transforming India into a “Viksit Bharat” by 2047. The significant thrust provided by the government through policy changes, including the recent abolishment of the “Angel Tax,” has come as a huge relief to the start-up ecosystem and the investor community.