In today's fast-paced digital world, financial success is often defined by wealth, and at the top of this hierarchy are high-net-worth individuals (HNIs). These individuals are not always inheritors of family wealth but have earned their financial standing through various means, garnering significant status in society due to their substantial net worth. In India, HNIs are defined as those who hold investable assets valued at Rs. 5 crore or more. Their wealth allows them to explore a wide range of investment opportunities, often diversifying across multiple channels such as real estate, stocks, bonds, private equity, and even alternative assets like art or luxury goods. This ability to invest broadly provides HNIs with enhanced financial stability and growth potential, allowing them to further solidify their status. As a result, they play a pivotal role in the financial ecosystem, driving market trends and influencing investment strategies both domestically and globally.
What is a High-Net-Worth Individual (HNWI)?
A high-net-worth individual (HNWI) is a person with a certain net worth that makes them stand out in society due to their immense wealth. High-net-worth individuals in India are classified as such as they hold investable assets amounting to more than Rs. 5 crore. The classification of high-net-worth individuals varies from country to country, and categorisation depends on general criteria.
In terms of the USA, a high-net-worth individual may be classified as one who possesses liquid assets worth at least USD 1 million. This is after considering the liabilities of the individual. Speaking in a general way, liquid assets include any cash and assets that can be liquidated easily and at short notice. Furthermore, high-net-worth individuals require custom-made money management and financial services due to their high net worth. In the financial arena, such individuals are referred to by the term “HNWI”.
High-net-worth individuals have a pride of place in society and may be associated with other influential people by dint of their financial position. These are individuals who may appear on the pages of celebrity media portals and whose investments and assets are the subject of much conversation. Due to their advantageous financial position, HNWIs invest in a diverse range of assets and investment instruments from stocks and mutual fund schemes to property and antiquities.
Example of high-net-worth individuals
An HNWI lies within the category of any person or investor who has liquid assets (including cash) worth Rs. 5 crore or more in India. Such individuals are commonly corporate executives, business owners, entrepreneurs, and other individuals such as celebrities and eminent figures in society. HNWIs usually receive preferential treatment from financial institutions due to the business they generate. While many people strive to reach a high net worth, it is possible to become an HNWI via different avenues like earning well, saving money, and making smart investments. Investments take the form of many instruments and assets like stocks and property. Today, you can make many lucrative investments, and although just one may not make you an HNWI, you can always start with mutual fund investment on the Bajaj Finserv Mutual Fund Platform.
Types of high-net-worth individuals in India
High-net-worth individuals are classified into certain types. The classification is based on the individual’s net worth. Some common types include sub-HNWIs who have a net worth (in USD) exceeding Rs. 5 crore. This range does not include personal belongings, collectibles, real estate, and consumer durables.
High-net-worth individuals can be segmented based on the extent of their wealth and financial behaviour:
- High-Net-Worth Individuals (HNWIs): Individuals with liquid assets of up to Rs. 5 crore.
- Very-High-Net-Worth Individuals (VHNWIs): Individuals with a net worth ranging from Rs. 5 crore to Rs. 25 crore.
- Ultra-High-Net-Worth Individuals (UHNWIs): Individuals with a net worth exceeding Rs. 25 crore.
How are HNWIs categorised?
Based on their overall net worth, high net worth individuals (HNIs) are divided into three groups:
- Individuals with liquid assets up to Rs. 5 crore are classified as High Net Worth Individuals (HNWIs).
- Those with a net worth of between Rs. 5 crore and Rs. 25 crore are referred to as Very High Net Worth Individuals (VHNWIs).
- Individuals with a net worth over Rs. 25 crore are classified as Ultra High Net Worth Individuals (UHNWIs).
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Benefits that high net worth individuals get
Being an HWNI brings you several advantages on account of your net worth. The benefits of HWNIs are mentioned below:
1. Personalised managed investment accounts
High-net-worth individuals commonly qualify to avail of tailor-made managed investment accounts that match their unique financial plans and risk profiles. Such accounts provide various investment options from stocks to real estate. Investment avenues may even go beyond regular investing in mutual funds and other common investment pathways.
2. Estate planning
Some of the more sophisticated services that high-net-worth individuals can avail of include estate planning. To protect their legacy, HNWIs require seamless transfers where their assets and property are concerned. HWNIs have access to bespoke services to streamline their taxation and other legal affairs concerning their real estate.
3. Tax Planning
With exclusive services for estate planning, comes tax planning and management. These services are offered to affluent people to reduce their tax liabilities and optimise savings.
4. Portfolio Management
HNWIs are offered expert guidance where their investments are concerned. They have professional financial managers to advise them on asset allocation and oversee diversified portfolios while matching investment and asset allocation to an individual’s distinctive financial objectives.
5. Diversification
Related to portfolio management services offered to high-net-worth individuals is portfolio diversification. HNWIs gain access to special investment opportunities that are not available to other investors. Possibilities include venture capital options, hedge funds, private equity investments, and more.
6. Access to resources and networks
An HWNI can make the most of privileges that expose them to developing a robust network of business leaders, professionals, and individuals from similar strata. Additionally, HWNIs may be exposed to various exclusive resources that help them grow their wealth and allocate assets appropriate to their affluence.
What are the privileges of high-net-worth individuals?
High-net-worth individuals are given unique privileges by financial institutions and other organisations. The special financial treatment that is afforded to them includes partaking in pre-IPO placements, investing in hedge funds and private equity, taking part in pre-ICO sales, and accessing a community of angel investors to pursue investment in promising start-up firms.
Investment options for HNIs
HNWIs are offered potentially the best investment opportunities depending on their net worth and financial goals. For high-net-worth individuals, diverse investment channels give them customised investment plans and management. Key investment options open to HWNIs are highlighted below:
1. Equity investments
A person who is an HNWI has the privilege of investing in private companies (emerging startups) that promise growth in the future. These may be risky investments, but they offer the prospect of substantial gains.
2. Hedge funds
Accredited investors have exclusive access to investment in diverse hedge funds that pool the wealth of a special set of similar HNWIs. These funds tend to have high associated risks but potentially offer high returns. Also, the appeal of minimal investment and maximal gain appeals to some HNWIs.
3. Real estate
An attractive investment opportunity for any HWNI comes in the form of real estate, either commercial or residential. Premium properties are offered and these present potentially high rates of appreciation in the future. HWNIs also show a keen interest in the investment of real estate investment trusts (REITs).
4. Structured products
Structured products give high-net-worth individuals the chance to explore a range of assets like stocks, commodities, currency derivatives, and bonds.
5. Art and collectibles
Investing in art and collectibles like antiquities has not quite taken off to a head start in India, but HWNIs in India are getting warm to these investment channels. Art and collectibles offer investors the chance to diversify their portfolios, although they may not be as liquid as other assets. However, these provide capital appreciation in the long run.
6. Private debt
High-net-worth individuals can get engaged in private debt investments such as providing funding in place of regular interest payments from borrowers. Investments such as these give investors a regular income source and carry low risk.
7. Mutual funds
Mutual funds of various types are available today and prove worthy investments for any kind of investor, large or small. With different mutual funds on the market, suiting almost all investment goals, mutual funds offer investment solutions that may prove less risky than direct equity investment. Although returns may be moderate, HNWIs have the advantage of investing large sums that can potentially yield substantial returns.
8. Sovereign gold bonds
A contemporary investment option, sovereign gold bonds (SGBs) give you investment in gold in a safer way than buying and storing physical gold. SGBs are issued by the Indian government and generate an annual yield for investors. Furthermore, as this investment option is backed by the government, there is an element of safety that is appealing to investors.
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How can HNIs manage their investments and wealth?
Here are some of the main ways that HNIs can manage and grow their wealth:
1. Wealth management
Quality wealth management services are offered to HNIs and these are custom-made to suit individual investors and their financial goals. With an emphasis on capital appreciation through portfolio diversification, any HNWI can benefit from such a special financial service.
2. Tax planning
High-net-worth individuals seek taxation advice to minimise their tax liabilities and maximise their wealth. Exclusive teams of wealth managers and tax professionals can be at the beck and call of HNIs to service their taxation requirements.
3. Estate planning
Estate planning is a vital aspect of any HNI’s financial requirements. Estate planning ensures that high-net-worth individuals preserve their legacies over subsequent generations and ensure a worry-free transfer of assets in a fair manner. Estate planning professionals make sure that their services include the creation of wills and trusts to ensure a seamless flow of bequests from one generation to the next,
4. Risk management
A priority for most HNIs is the management of risk. As HNIs possess immense wealth and an array of assets and investments, risk management is crucial to protect their wealth in the event of unforeseen circumstances. To hedge against risks, HNIs often opt for premium insurance plans like health insurance, life insurance, business insurance, and general insurance.
Where can HNIs Invest in India?
High-net-worth individuals (HNIs) in India have access to a broad range of investment avenues tailored to their financial goals and risk appetite. With significant wealth at their disposal, HNIs often diversify their portfolios to balance risk and maximise returns. Here's a look at the various investment options available to HNIs in India:
1. Equity and stock markets
HNIs frequently invest in equities, either directly or through managed portfolios. Direct equity investment allows them to take advantage of market fluctuations and earn substantial returns over time. Many HNIs also opt for professionally managed portfolio management services (PMS), where experts handle their stock investments to optimise returns while mitigating risk.
2. Mutual funds
HNIs often invest in mutual funds, including high-value AIFs (Alternative Investment Funds), which cater to sophisticated investors. These funds offer diversification across various asset classes like equities, debt, and hybrid schemes. Many mutual fund houses offer bespoke services for HNIs, tailoring portfolios to meet their specific financial objectives.
3. Real estate
Real estate has long been a favoured investment avenue for HNIs in India. They invest in high-end residential and commercial properties, which not only provide significant returns through rental income but also long-term appreciation in value. Additionally, HNIs also explore Real Estate Investment Trusts (REITs), which allow them to invest in real estate without the need for direct property management.
4. Private equity and venture capital
HNIs with an appetite for risk often invest in private equity and venture capital, contributing to early-stage companies and startups. These investments can yield exponential returns if the companies succeed, making them attractive to HNIs looking for high-growth opportunities.
5. Bonds and debt instruments
Many HNIs also allocate a portion of their wealth to safer investment options like government bonds, corporate bonds, and fixed deposits. These provide steady income streams with relatively low risk, offering a balance to their high-risk equity and alternative investments.
6. Alternative investments
HNIs explore alternative investments such as commodities, gold, cryptocurrencies, and art collections. These non-traditional investments offer portfolio diversification and potential for high returns, particularly during periods of economic uncertainty.
7. International investments
HNIs in India also seek opportunities abroad, investing in global markets, foreign real estate, or international funds. This helps them hedge against domestic market volatility and gain exposure to global financial trends.
In summary, HNIs in India have a wealth of options ranging from traditional equity and debt markets to more specialised investments like private equity, real estate, and international assets.
Risks and challenges faced by high net-worth individuals
While HNWIs enjoy exclusive benefits and access to diverse investment opportunities, they also encounter several significant risks and challenges. Below are some of the most common issues they face:
1. Market Risk
Market-linked investments, which are popular among HNWIs, are highly susceptible to price fluctuations and volatility. This exposes them to the potential for losses during unfavorable market conditions.
2. Regulatory Risk
Certain investments favored by HNWIs may lack adequate regulatory oversight. In such cases, they are vulnerable to risks like fraud and unexpected regulatory interventions, which can negatively impact their investments.
3. Interest Rate Risk
HNWIs investing in bonds and fixed-income securities often face interest rate risk. For example, a rise in interest rates can result in underperformance of their fixed-income investments.
4. Liquidity Risk
Investments in alternatives such as private equity, private debt, and real estate tend to be highly illiquid. This creates significant challenges when attempting to liquidate these investments quickly.
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Where are most high-net-worth individuals (HNWIs)?
North America holds the top position in terms of the number of high-net-worth individuals (HNIs), boasting an impressive 7.9 million. This region's dominance can be attributed to its mature financial markets, thriving industries, and a robust economy that provides numerous opportunities for wealth creation. The United States, in particular, leads the charge, with a significant concentration of HNIs across major cities such as New York, Los Angeles, and Chicago.
Following closely is the Asia-Pacific region, which is home to 7.4 million HNIs. The rapid economic growth of countries like China, India, and Japan has propelled this region's rise in the global wealth rankings. The burgeoning technology sector, combined with increasing foreign investments and industrial development, has paved the way for significant wealth generation among entrepreneurs and business leaders in this part of the world.
Europe, with its rich history of financial stability and well-established markets, ranks third, with 5.8 million HNIs. The region's high-net-worth population is concentrated in countries such as Germany, the United Kingdom, and Switzerland, where industries like finance, manufacturing, and luxury goods play a significant role in wealth accumulation. Collectively, these regions drive global economic trends through their considerable financial influence.
Key by HNIs
Some of the main challenges that HNIs face are related to appropriately managing their wealth. Although high-net-worth individuals are sought-after by investment firms and wealth managers, they experience challenges in association with taxation as large amounts of wealth are involved. Furthermore, there is always the risk of investment for HNIs who invest in high stakes.
Key Takeaways
- A high-net-worth individual is a person with at least $1 million in liquid financial assets.
- North America had a record number of high-net-worth individuals, at 7.9 million people as of 2023.
- An ultra-high-net-worth individual has a net worth of $30 million.
- In 2022, the wealth of ultra-high-net-worth individuals decreased by about 3.7%.
Conclusion
High-net-worth individuals may be envied for their wealth and affluent lifestyles, but they have to face the challenges of wealth allocation and taxation with higher stakes involved. HNWIs require customised portfolio management services and have to plan for the future so that their legacy is passed on without any hassle. On the other hand, HNIs have a world of investment opportunities at their feet, and by selecting the right investment, they can navigate a bright financial path for future generations.
Investing and financial planning is not rocket science and with the right approach, anyone can invest smartly today. You get tailor-made investments to suit your needs, especially if you consider mutual fund schemes that offer you returns according to your financial goals and risk appetite. Have a look at the various mutual fund plans on offer at the Bajaj Finserv Mutual Fund Platform. You have a wide choice, but you will find a plan that suits you best out of the 1000 and more mutual funds to compare and make an informed decision. Starting your investment journey with mutual funds is a potentially good way to forge a roadmap to financial freedom.
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