Evolution Of Wealth Management
As an area of high importance, wealth management has evolved over the past few decades. This change is especially visible in the Indian asset management landscape with both retail investors and HNIs jumping into the market fray.
Over the past few decades, the idea of wealth management itself has dramatically transformed in the country.
In the period before the 1991 economic reforms kicked in, the number of mass affluent investors itself was fairly low. HNIs or UHNIs were far and few between.
Though the Bombay Stock Exchange (BSE) had around for long (from the 19 th century) and started the Sensex index in the 1980s, there was limited interest in stocks.
Much of the investment in the pre-reform era centred around bank deposits and endowment/ moneyback life insurance policies, where safety and assured returns were the hallmarks and the deciding factors for choosing those products.
In the post-reform era and especially over the past 10-20 years, the wealth management space has evolved massively with the rapid financialization of savings and rising comfort with market-linked products.
Reforms usher in a new era
As mentioned earlier, for much of the period before the 1990s, bank deposits, insurance policies, physical gold and real estate were the only sought-after asset classes sought by investors. Partly because these avenues delivered safety and reasonable returns and partly because there were no other market-linked avenues, more so for retail investors.
The market regulator, Securities and Exchange Board of India (SEBI) was given statutory powers in 1992 and it been a strong organization overseeing the market functioning.
In the early 1990s, for the first time, we had a host of foreign financial firms starting mutual funds in India, which caught the interest of a few risk-taking investors. Over the years, many Indian firms joined the fray and the asset management industry was beginning to take off.
After the opening up of the economy, despite the Harshad Mehta scam, NBFC failures, east-Asian currency crisis, Y2K challenges, 9/11 terror attack, the first decade after 1991 saw equity markets gaining traction.
As mutual funds took off, SEBI mandated daily disclosure of NAVs, which was a huge step forward at that time in terms of transparent disclosures. It was in 1993 that the Portfolio Management Services were allowed to commence operations in India and the ticket size was kept higher. For a long period, it was Rs 25 lakh, thought in was increased to Rs 50 lakh later.
Economic growth and market expansion
From the early 2000s, as the IT, Banking and Insurance and other services sector industries prospered, they ushered in a new set of investors who earned well and started their investment journey.
India’s infrastructure roll-out also started in this period and major reforms, including government disinvestments took shape.
In the period between 2003 and 2007, India witnessed one of the most bullish equity markets with a 7-fold rise in this period. This gave further impetus to mutual funds and PMS players.
Despite the market crash in 2008 worldwide due to the global financial crisis, market recovered over 2009-10.
Around and after 2005, India witnessed rapid growth in mobile penetration, increase in internet usage, and the start of online businesses in India, including e-commerce firms and travel portals.
In the decade leading up to 2014, India climbed the economic ranks in terms of GDP growth and also saw reasonable participation from private equity and venture capital firms.
The decade alternative funds and PMS providers
PMS providers have had a great run in the past decade or so. Another game changer, however, happened when the first AIF regulations came about in 2012. This brought in a new set of wealthy investors looking for bespoke solutions and sophisticated investment avenues.
With rapid digitization, availability of high-speed data, explosion of start-ups, thriving fintechs and evolution in technologies such as Gen AI, the investment ecosystem became robust to accommodate a host of opportunities for the wealthy. Private equity, venture capital, angel funding etc. became ubiquitous in the start-up universe.
In the post-COVID period, the rallying markets have brought in investors by their hordes. While there may some level of speculative investors and those dabbling in derivatives or day-trading, sophisticated investors are also very much here, and in large numbers.
The AIF industry has grown 10x in the last 20 years and has raised commitments worth Rs 11.3 trillion as of March 2024. CRISIL Research expects the industry to grow at a pace of 27-29% annually till 2027.
PMS assets – discretionary, non-discretionary and advisory – have grown at 15.8% over the past 10 years to Rs 33.62 trillion as of April 2024.
There has been some kind of a demarcation in terms of investment preferences over the past decade, and especially in the last five years.
While retail investors continue to repose faith in mutual funds, HNIs and UHNIs are clearly preferring PMS and AIFs for their needs.
SEBI’s regulations over the years have ensured that PMS and AIFs have categorization, benchmarking and transparent disclosure of underlying investments to clients mandatory.
PMS is allowed to have discretionary, non-discretionary and advisory models.
AIFs spread over three categories (I, II and III) allow wealthy investors (the minimum ticket size is Rs 1 crore) to consider multiple options.
- Venture capital, social ventures, SME, start-ups and infrastructure funds
- Private equity funds, bond funds, real estate funds and fund of funds
- Hedge funds, commodity funds and private investment in public equity (PIPE)
With sophisticated strategies with varied risk levels, PMS providers and AIFs cater to a whole host of wealthy individuals, including NRIs.
Today there are opportunities galore for HNIs and UHNIs from PMS and AIFs across the board. The solutions provided are tech-driven, transparent and done in the best interest of clients.
Performance-linked fees and professional fund managers with extensive market and domain expertise, smart technology and model driven strategies are welcome trends in the journey of wealth creation.
From the days of just having a few deposits and insurance policies for lifelong investments, the wealth management landscape in India has indeed become extremely broad-based with a humongous number of choice available to the retail investor as well as to the wealthy.
