The definition of high net-worth individual (HNI) varies from country to country when it comes to the numerical criteria. In India, a person with an investible surplus of over Rs 5 crores is considered to be an HNI. Even within India, different agencies have different thresholds for HNI, like Rs 2 crores, $ 1 million, etc., in investible surplus. Out of these elite individuals, the ones with more than Rs 25 crores waiting to be invested are categorised as Ultra-HNI.
A Knight Frank 2020 report, which uses the $1 million benchmark, estimates that there were 2.9 lakh HNIs in India in 2019. It further stated this could go up to 5 lakhs by 2024. The report noted that HNIs and UHNIs have an affinity towards equities, real estate, fixed income instruments, private equity, and gold as the preferred forms of investment.
How are their investments different?
One striking difference in HNI investment philosophy is the risk associated with the more extensive investment amount at stake, which guides their investment pattern. They also fall into a steeper tax bracket; therefore, their investments are a combination of tax-saving instruments and income generating avenues.
Real Estate - Their real estate investments can be in the form of revenue-generating commercial property, holiday homes for recreation purposes, or residential properties for rental income. Apart from commercial office spaces, HNIs can also invest in storage spaces and shopping arcades. For tax benefits, an investment in agricultural land can also be a suitable option for HNIs.
Equity - HNIs are known to invest in listed as well as private equities. With sufficient wealth at their disposal, they can spread their risk exposure by investing in the share market. HNIs are also a popular source of venture capital and angel investment among startups.
Fixed Income - HNIs are almost certain to invest in fixed income sources to hedge their investment risk. With immense wealth comes higher risk, and instruments like government bonds and schemes offer the basic investment safety that investors expect.
Precious metal – Investment in precious metals and gems provide HNIs with a safe option of parking a portion of their money. With substantial investment in market-driven investment instruments, gold and precious metals provide HNIs with the inflation hedge and a safe long-term investment alternative. They can opt for it as an essential portfolio diversifier.
The primary objective of HNIs is to build on their wealth through investments, unlike common people who invest to earn wealth in the first place. This objective, combined with the objective of tax savings, guides the investment pattern of HNIs.