Top 5 long-term investment options for HNIs
Right now we have to face the problem of abundance. There are a myriad of options available to investors and it has become extremely difficult to narrow them down further for a specific person or group, especially for an investor with a surplus greater than ??2 crores which are considered high net worth individuals in India.
Given this conundrum, here are some possibilities for enabling High net worth individuals (HNIs) to plan credible long-term investments efficiently and effortlessly.
Equities and fixed income:
It sounds like too simple and obvious an investment option. Sometimes it’s the most basic strategy that has the potential to multiply and create substantial wealth. Equities and debt asset classes can be leveraged effectively to protect capital while generating significant returns.
PMS to generate alpha & ETF to generate beta:
Equities are not relegated solely to direct investment in equities. The right swap and mix of stocks and instruments in the stock market can help generate better returns and provide some protection of capital.
As the PMS is one such investment avenue, it has many advantages, such as owning a quality portfolio, a transparent fee structure, a personalized and separate portfolio where investors can invest according to their risk appetite with the help of a portfolio manager. Signing up for a portfolio management service (PMS) can help build alpha by keeping a skilled and experienced professional at the helm with the sole aim of generating good returns.
Additionally, investing in market-linked instruments like ETFs that track the index can provide a cap on the volatility inherent in stock markets. Flexibility in trading, absence of expiry period and liquidity are such favorable points that make it a profitable investment avenue for HNI.
Fixed income securities or structured debt securities:
Preserving capital is as important as growing wealth. Debt instruments such as government and corporate bonds, certificates of deposit (CDs), money market funds, etc. focus on the preservation of capital and income. It contributes to the overall diversification of the portfolio by offsetting the risk of losses due to fluctuations in the stock markets. Frequently, we observe that the prices of stocks and bonds move distinctly and that the correlation is therefore weak. HNIs may invest in debt securities to protect their portfolio downside risk.
Likewise, investing in structured products, as opposed to straightforward options, can provide relative debt stability while providing potentially higher returns. Structured products are designed to meet the risks and objectives of the investor who invests in assets such as bonds, stocks, currencies or interests, ETFs, indices and derivatives.
Fixed assets such as real estate:
Investing in physical and tangible assets like real estate has always been one of HNI’s favorites. They should continue to be part of the overall portfolio for long-term wealth creation. Investing in a REIT not only creates an asset that will grow over time, but it also has the potential to generate a constant cash flow in the form of rental returns.
The interpretation of owning fixed assets like real estate has certainly changed in today’s era with instruments like real estate investment trusts (REITs) and fractal ownership of high-end properties that earn. slowly from the ground.
Alternatives like gold, unlisted stocks and others:
Besides those mentioned above, HNIs have many other unconventional investment options that they can explore, such as investing in gold, unlisted stocks, alternative investment funds (AIFs), venture capital, private equity, etc. Investing in an alternative asset class helps in portfolio diversification due to low correlation with traditional asset classes.
Each of the above asset classes has a unique quality or aspect that can be leveraged to improve the viability of the overall portfolio and achieve better risk-adjusted returns over the long term.
Mrinal Singh is the CIO and CEO of InCred AMC
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