Think Tank

HNIs in India and Asset Allocation

Smita Kapoor

The Indian investor is predominantly a debt investor. His chief aim has always been to protect the old inherited wealth. However, the last few years have seen a radical shift in this mind set. More and more funds of these investors are increasingly finding their way into the Equity and Real Estate markets. In fact the boom in the last decade, in both the Equity and more so in the Real Estate markets, can be attributed to the funds inflow provided by the HNIs and Ultra HNIs into these markets. The investors have understood the importance of Asset Allocation. They have incorporated Asset Allocation in their investment plans and have been diversifying their investments from only the Risk-Averse (Fixed Income) instruments to more growth oriented Equity and Real Estate instruments. With the opening up of credit lines by banks, for investment into Real Estate sector, money flow into this instrument has been very high and has lead to greater allocation of funds from individuals from their total basket.

However, it’s not all hunky-dory in these high return-high risk spaces. Equity and Real Estate have thrown up challenges in the form of volatile phases that investors have had to face head on. What the investor may have slowly but surely learnt is that predicting returns in a short term is extremely difficult.

The last 5 years of the Indian markets history has given every one a real brush with the experience of volatility. We have seen the biggest and sharpest run-ups in the financial markets and also perhaps the worst and the steepest falls. The bounce back from the recessionary times into this boom for the capital markets again, all in a span of just 5 years. The age old theory of “Time in the Market, not Timing the Market” for making money has been proven correct. Predicting returns in these volatile times has become nearly impossible since there are numerous factors which influence the price behavior of an asset. The other temporary factors (mostly sentimental) may influence the fundamental factors in the short term, but in the longer term the fundamentals always play out.

Therefore, the best way of avoiding the volatility is to decide your Asset Allocation depending upon your Risk/Return parameters and to diligently stick to it. Resisting temptation in luring times is most important and reallocation of funds to return to one’s original Asset Allocation is the key to long term wealth creation. The bottom line is that the only way to win over the market is by being a disciplined investor who follows asset allocation in investment!

Disclaimer: The views expressed in the articles are personal of the authors and do not reflect the views of Kotak Mahindra Bank Ltd.

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