- Date : 03/02/2023
- Read: 3 mins
A look at some of the more complex financial products opted for by HNIs
More wealth often means investing more in traditional instruments like real estate, precious metals, stocks etc. However, high net-worth individuals (HNI) have also been interested in wealth creation through niche investments like artwork and antiques, international investments, hedge funds etc.
Also Read: These 5 are the best bond funds to buy in India in 2023
Innovative investment solutions are on offer for HNIs as per their risk and reward profiles. As the wealthier class looks for alternate investment options, they have run out of simpler traditional investment products. To address this need, fund managers and consultants continue to design and offer more complex financial products to them.
Complex Financial Products
So, if you are wondering if higher wealth leads to more complex financial products, you are right. Traditional debentures get market-linked, shares are up for purchase before their listing, real estate and infrastructure investments are made through trusts, and private pooled funds become available for investment.
- Alternative Investment Funds (AIF) – AIFs are established or incorporated in India as privately pooled investment vehicle that follows a defined investment policy. Funds are collected from domestic as well as foreign investors. AIFs can be angel funds and venture capital funds, social venture funds and infrastructure funds. AIFs may also be Private Investments in Public Equity funds or hedge funds that employ complex trading strategies and invest in listed or unlisted derivatives.
- Marke-linked debentures (MLD) – MLDs follow a benchmark index to enable investors to avoid the higher risk that direct market investment involves. MLDs may follow gold prices, government bond yields or simply Nifty50. Some MLDs also provide capital protection assurances. MLDs are issued by NBFCs, and many of these are listed and credit-rated too. They have a lower tax incidence compared to other debt-specific investments and are therefore popular among HNIs.
- REITs and InvITs – Real Estate Investment Trusts and Infrastructure Investment Trusts are other examples of a sophisticated version of traditional investments. With REIT you can invest in trusts that own and operate real estate properties. Your investment can garner capital appreciation and regular income. InvITs are trusts that own and operate infrastructure assets and like REITs offer regular income and long term capital appreciation. REITs have a minimum investment of Rs 50,000 while InvITs require a minimum investment of Rs 1 lakh.
Also Read: Real estate vs Mutual funds vs Invits vs Stocks-Whose return on investment is better
- Pre-IPOs – IPOs are a popular mode of investment. However, pre-IPOs add a twist to it and makes it a lucrative investment option for HNIs. These are unlisted stocks that are bought and sold over the counter. There is more flexibility on the amount you invest in pre-IPOs, where IPOs often get oversubscribed and have caps on how much you can invest. Pre-IPOs offer an opportunity for the investor to invest in emerging companies that are employing newer business or investment strategies or have unique competitive advantages.
Thus, it can be concluded that various complex financial products are designed keeping the expectations of the HNIs in mind. However, the tenets of portfolio management must be followed even as you add these financial products to your kitty.
Disclaimer: This article is intended for general information purposes only and should not be construed as investment or legal advice. You should separately obtain independent advice when making decisions in these areas.
Source
More wealth often means investing more in traditional instruments like real estate, precious metals, stocks etc. However, high net-worth individuals (HNI) have also been interested in wealth creation through niche investments like artwork and antiques, international investments, hedge funds etc.
Also Read: These 5 are the best bond funds to buy in India in 2023
Innovative investment solutions are on offer for HNIs as per their risk and reward profiles. As the wealthier class looks for alternate investment options, they have run out of simpler traditional investment products. To address this need, fund managers and consultants continue to design and offer more complex financial products to them.
Complex Financial Products
So, if you are wondering if higher wealth leads to more complex financial products, you are right. Traditional debentures get market-linked, shares are up for purchase before their listing, real estate and infrastructure investments are made through trusts, and private pooled funds become available for investment.
- Alternative Investment Funds (AIF) – AIFs are established or incorporated in India as privately pooled investment vehicle that follows a defined investment policy. Funds are collected from domestic as well as foreign investors. AIFs can be angel funds and venture capital funds, social venture funds and infrastructure funds. AIFs may also be Private Investments in Public Equity funds or hedge funds that employ complex trading strategies and invest in listed or unlisted derivatives.
- Marke-linked debentures (MLD) – MLDs follow a benchmark index to enable investors to avoid the higher risk that direct market investment involves. MLDs may follow gold prices, government bond yields or simply Nifty50. Some MLDs also provide capital protection assurances. MLDs are issued by NBFCs, and many of these are listed and credit-rated too. They have a lower tax incidence compared to other debt-specific investments and are therefore popular among HNIs.
- REITs and InvITs – Real Estate Investment Trusts and Infrastructure Investment Trusts are other examples of a sophisticated version of traditional investments. With REIT you can invest in trusts that own and operate real estate properties. Your investment can garner capital appreciation and regular income. InvITs are trusts that own and operate infrastructure assets and like REITs offer regular income and long term capital appreciation. REITs have a minimum investment of Rs 50,000 while InvITs require a minimum investment of Rs 1 lakh.
Also Read: Real estate vs Mutual funds vs Invits vs Stocks-Whose return on investment is better
- Pre-IPOs – IPOs are a popular mode of investment. However, pre-IPOs add a twist to it and makes it a lucrative investment option for HNIs. These are unlisted stocks that are bought and sold over the counter. There is more flexibility on the amount you invest in pre-IPOs, where IPOs often get oversubscribed and have caps on how much you can invest. Pre-IPOs offer an opportunity for the investor to invest in emerging companies that are employing newer business or investment strategies or have unique competitive advantages.
Thus, it can be concluded that various complex financial products are designed keeping the expectations of the HNIs in mind. However, the tenets of portfolio management must be followed even as you add these financial products to your kitty.
Disclaimer: This article is intended for general information purposes only and should not be construed as investment or legal advice. You should separately obtain independent advice when making decisions in these areas.
