India's High Net-worth Individuals’ (HNIs') wealth is estimated to reach approximately INR 400 Tn over the next five years
The stock market has witnessed a significant increase in its retail participation, especially during the New Normal
With innovative, cost-effective services and enhanced customer experience, fintech startups are disrupting the financial services industry
While the Indian wealth management industry was in a very nascent stage a few years ago, the scenario is changing rapidly at present. The country holds enormous potential for wealth creation in the foreseeable future and the industry is ready to tap into the opportunity.
According to Capgemini’s World Wealth Report, India is amongst the top ten countries in terms of total holding of private wealth. India’s High Net-worth Individuals’ (HNIs’) wealth is estimated to reach approximately INR 400 Tn over the next five years, growing at a CAGR of 27%.
With burgeoning wealth and improving financial literacy, Indians are also actively participating in relevant opportunities to meet their financial goals. The stock market has witnessed a significant increase in its retail participation, especially during the New Normal. In uncertain times like these, more investors – both novice and experienced – are realizing the value of customized and expert guidance by turning to wealth management firms.
However, several other factors are also contributing to the evolving wealth management and investment landscape in India. They include:
DIY And Robo-Investment Platforms
Increasing internet penetration and growing awareness is simultaneously adding to the popularity of DIY platforms or robo-advisors. Working professionals especially prefer this approach since they do not need to closely track their investments. It is while enjoying complete control of their investment and the ability to bring customization as and when they need. Many investors are today opting for these automated, algorithm-driven advisors for asset allocation and portfolio management.
A Shift Towards The Advisory Process
The traditional commission-based model, which was focused on product or service distribution, is now shifting to a more advisory-focused approach. There also has been a paradigm change with investors moving from Mutual Fund distributors to Fiduciary Advisors (trusted investment advisors). This is because Mutual Fund distributors are less focused on quality and more on quantity, thereby delivering non-optimal results. Also, in the past, multiple scenarios like YES Bank and IL&FS crises have raised questions around the credibility of certain MF houses – especially from the point of view of an end-investor.
This is where fiduciaries – with their strong focus on quality assets – have a considerable edge over their MF distributor counterparts. Fiduciary advisors offer stock and MF recommendations, Tax Planning, Insurance Advice, Asset Allocation Services, Personalized Advice, and Portfolio Review. It offers superior value for money to their customers.
Innovation And Technological Advancement
With innovative, cost-effective services and enhanced customer experience, fintech startups are disrupting the financial services industry. Leveraging state-of-the-art technologies such as Artificial Intelligence and Big Data, they are providing working professionals cutting-edge investment services that were earlier restricted to HNIs. Such services are backed by in-depth data analyzed through proprietary investment engines. It greatly simplifies investment for them and narrows down the process while extending the touch-of-a-button experience. More asset management firms are leveraging the power of Big Data and algorithms nowadays.
Low Barrier To Entry
Earlier, wealth management solutions involved high barriers to entry and typically required big-ticket investments. Now, quality wealth management solutions are available across socioeconomic classes. It is also benefitting the larger economy by increasing the circulation of money by channelizing people’s surplus income into high-yield investments instead of bank interests.
Increased Retail Participation
With technology becoming the prime driver of businesses, geographical access and the last-mile delivery of services have improved. Increasing awareness and decreasing affinity towards traditional investment instruments is also driving more people towards the stock markets, especially the affluent population from the tier-II and tier-III cities. Besides these factors, the Covid-19 pandemic has triggered a rush of new retail investors as well.
Finally, the average age of an Indian investor has dropped to 30 years. Investors are financially aware, digitally savvy, and more interested in sustainable investments. However, they neither have the expertise nor the time to manage their assets.
So, it’s a matter of time before this large chunk of Indians starts seeking professional guidance, setting the wealth management industry on a continuous path of growth.