New Delhi: High net-worth individuals, or those with financial assets of at least $1 million (Rs4.28 crore), are switching their wealth from choppy stock markets to liquid assets such as short-term funds investing in government securities and cash deposits.
In some instances, say investment managers, these individuals are holding as much as three-fourths of their portfolio in cash. Between 10 January, when the Sensex reached its lifetime high of 21,206.77, and 1 July, the benchmark index of the Bombay Stock Exchange had fallen about 39%, triggering a flight to safety by investors
“Cash is going to be an important asset right now,” said Jaideep Hansraj, head of Kotak Wealth Management Services. “Most of our investors’ holdings is in cash today, including liquid and short-term gilt funds.”
He said only a small portion of money has gone into structured products, which are designed in such a way—typically offering a mix of debt and equity—that they protect investors from volatility in stock markets. While they reduce risk, such investments offer lower returns and are customized for high net-worth individuals
“The flow (of investment) into such products is only around Rs200-300 crore, which is not a substantial shift,” Hansraj said.
Structured products are being offered by banks such as Citibank NA, Hongkong and Shanghai Banking Corp., ICICI Bank Ltd and HDFC Bank Ltd as well as by brokerage firms such as Edelweiss Capital Ltd. The minimum investment for a structured product can range from Rs10 lakh to Rs20 lakh. Crisil Ltd offers a rating system for more than 35 such products that are available in the Indian market.
“Around three-fourths portfolio of our new clients is in cash,” said Rajesh Saluja, chief executive officer of ASK Wealth Advisors, a Mumbai-based private wealth management company.
“Existing clients, however, have 15-20% in cash while the rest is in equities, which they didn’t liquidate in the sliding markets.”
According to the second Asia-Pacific wealth report published by Merrill Lynch and Co. and Capgemini, at the end of 2006, India was home to 100,000 high net-worth individuals, largely in the age group of 41-55 years. They held a combined $350 billion in financial assets at the end of 2006, representing 4% of the Asia-Pacific total, the study said.
Given the rise in interest rates, most investors are avoiding income funds, too.
“Cash and liquid funds are where high net-worth individuals are investing most of their money. Such funds give an average return of around 6-7%,” Hansraj of Kotak Wealth Management added.
Still, investors are demanding more structured products and investment instruments that protect their capital, said Anurag Shangari, wealth manager at Edelweiss Securities.
“Fixed-maturity plans are also in demand given increase in their coupon rates from 8% to 10%. Some of them are holding onto their stocks while other have started picking up value stocks,” Shangari said.
Fixed-maturity plans are short-tenure debt funds that invest in instruments such as government bonds, commercial paper, and term deposits of banks.