HNIs board flight to safety amid wild swings in market

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MUMBAI: High net worth (HNI) investors are choosing simple products over complex and exotic instruments in a falling and volatile market.

Mid-cap and small-cap portfolio management schemes (PMS), perpetual bonds, preference shares, and credit risk funds are clearly not favoured by the rich now.

Instead, affluent investors are opting for simple and transparent products, such as liquid funds, index funds and large cap funds with high liquidity.

“There is a flight to safety among the rich. Return of capital is more important than return on capital at the moment,” said Anup Bhaiya, MD and CEO, Money Honey Financial, a Mumbai-based distributor of financial products.

Investing in a liquid fund or a low duration fund, large cap and index funds, and staggering their equity investments over the next 6-9 months are some of the suggestions from wealth managers to their HNI clients.

Over the past one month, there has been a sharp fall in the stock market indices. The BSE MidCap and BSE SmallCap indices are down 21 per cent and 28 per cent from their peak levels in this calendar year.

Several mid-cap stocks, such as DHFL, PC Jewellers, Yes Bank and Infibeam have lost anywhere between 25-50 per cent from their peaks.

Investors have also had to face losses in debt funds due to the IL&FS issue. The episode has led to some fund houses writing off 100 per cent in their investments in papers of IL&FS, leading to losses of 5-7 per cent for investors in such funds. Added to that, investors in duration funds have been hit as interest rates continue to head higher over the past one year, with the 10-year benchmark going past the 8 per cent mark.

“At peak valuations, a lot of HNI investors got carried away and put additional funds in products expecting high returns, without understanding liquidity and risks they were getting into,” said S Shankar, Founder, Credo Capital.

Some PMS plans, which invested in mid- and small-cap stocks, have taken a sharp hit as the maximum correction has happened in those stocks.

Moreover, with liquidity drying up, it is difficult for investors to exit small and midcap stocks as selling them would only drag stock prices lower.

In equities, investors are reducing allocation to mid-caps and opting to stagger their investment in large cap or index funds over the next 6-12 months.

“…It makes sense not to invest at one go. Investors could stagger their investments over a longer period as any kind of negative trigger can quickly pull down the overheated market,” said Munish Randev, a Mumbai-based family office advisor.

Source: Economic Times