The investment profile of wealthy Indians is changing as interest rates are expected to decline in the near-term.
High net worth individuals (HNIs) in the country are now demanding long duration fixed income products so that they can park their money now and earn high interest before rates start easing, bankers and wealth managers said.
"Over the last 24 months investors have largely invested in low duration fixed income mutual funds and fixed maturity plans (FMPs). Lately investors are increasingly looking to invest in long duration products as the consensus view is that the interest rates have peaked and will start to reduce in the next few months," Ajay Bagga, head of private wealth management business in India, told Business Standard.
Investments in low duration fixed income and FMPs were driven by the focus on wealth preservation in the wake of the global financial crisis, high inflation and interest rates in India and the poor returns from the stock markets since 2008. This strategy has worked well for investors as India had an inverted yield curve for a long time.
But now the wealth managers are also recommending their clients to invest in long duration products.
"Currently we are advising our clients to go for longer duration products as we expect interest rates to come off in the next six months to one year. People have been investing in short duration products because of high interest rates and returns but now they should move to longer duration products to get the benefit of anticipated fall in interest rates," Prateek Pant, director of products and services at RBS Private Banking, said.
According to bankers, apart from long-term fixed income products real estate and gold are the most popular investment options for Indian HNIs. "With uncertain equity markets many HNIs have started investing in real estate. There are two types of investments in real estate. Either they are investing directly or lending money to a developer for an ongoing project," Sunil Mishra, chief executive officer at Karvy Private Wealth, said.
Investments in real estate and gold are also benefiting from the negative real interest rates and gaining popularity because of investors' preference for physical assets, Bagga said.
While the number of ratings downgrades and headwinds in some sectors has made investors cautious in their investment decisions, HNIs are still ready to explore opportunities in non-convertible debentures (NCDs) offered by some of the real estate companies.
"Some HNIs are ready to evaluate riskier credits by investing in NCDs of real estate developers, which give them returns in excess of 18 per cent," Pant said.
A similar view was echoed by Bagga. "Some aggressive investors were also buying high yielding NCDs with real estate or equity shares as underlying collateral," he said.
