The Major Segments
Kotak has just published a report on High Net Worth Individuals in India, dividing up the growing group into 3 segments: The Inheritor, the Self-made and the Professional. The report acknowledges there are 2 distinct groups which are “Old Money" and “New Money" but that the 3 segments divide it up even more specifically.
The Inheritor has been “Born with a Silver Spoon in his Mouth" and quite simply inherited the money, though s/he may work very hard to maintain or increase it. The Self-made may have been middle class or even very disadvantaged in youth, but somehow made great wealth. The professional could be a doctor, tech engineer, or financier who was able to parlay his work into significant income and savings.
What does an HNI look like?
One major recent change in High Net Worth individuals (HNI) is that the class is much more heterogeneous in India now. An HNI could well be someone who inherited wealth but could also be a professional who"s made money in Technology or a farmer"s son turned industrialist.
Whatever it be, HNIs in India tend to spend heavily on quality homes, food, clothing, and the luxuries of life in terms of entertainment, education, travel and family vacations. They invest conservatively and are increasingly interested in giving to charity and making a mark on the world through other means than the private consumption of their wealth. Passing the bounty on to successors is an important shared trait in this group.
Spending: Brand names and More
There are interesting differences in how the various groups like to spend and save their money. For example, the Inheritors seek out name brands less and are as comfortable wearing a Titan Watch as a low-end one their daughter might have given them using her pocket money.
The Self-made prefer to focus on name brands and hold them in high esteem. They are highly receptive to product innovation and are a goldmine for marketers of luxury products and services. The Self-made typically tend to use brands as a means to fulfil their aspirations. They are, therefore, plum targets for products based on cutting-edge technology or products tailored to their needs. They tend to purchase products from retail outlets in India, being short on time, whereas Inheritors often like to shop abroad, even for the same products.
Professionals make choices wisely and spend on brand names when they feel it makes sense, not purely for the brand. They often are passionate about hobbies and interests and tend to spend lavishly in these areas rather than for prestige or glamour.
Seeking Help and Support in Wealth Management, Accounting, Estate Planning
The Professionals use the most wealth management services, and are willing to pay for them, preferring to spend their time on family, hobbies and vacations. Self-made HNIs feel more comfortable with people than organizations so they favour developing personal relationships with specific chartered accountants, wealth managers, and private financial advisors. Friends and family often seek their advice on critical matters. Inheritors generally have an established network of advisors and professionals who guide their finances for them.
Investment styles differ in that Inheritors like to invest in more conservative asset classes whereas the Self made are comfortable taking on more risk in their investments. Professionals have a greater proportion of their total income available for spending and investing than other ultra HNIs. As most of them do not run a business, a lesser portion of their total income is marked for business investments.
Professionals, therefore, spend and invest a greater proportion of their income, placing about three-fourths of their investments into financial assets, primarily equity and debt. They like to give to charity more than other ultra HNIs and prefer to give through charitable institutions rather than at an individual level.
The Self-made take calculated risks with their investments. For instance, they are likely to have the highest proportion of investments, among the ultra wealthy, on alternate assets such as private equity. They also favour FDs and insurance policies, however, and tend to invest only in assets they understand. They are likely to own a mix of real estate assets such as holiday homes, commercial buildings and agricultural land and plantations, apart from apartments and villas.
Inheritors are the most risk averse in the group, preferring ample real estate investments (approximately 40%) along with a highly diversified portfolio of equity, in about the 30% range. They have established systems for the succession of wealth, but these are changing with time, especially when a child does not want to take on the family business and a professional is brought in.
Whatever the sub category, the Ultra HNIs are a class apart, and a growing class in India. For more information, check out the study at this link.