Future landscape of wealth management industry in India

Rajnish Girdhar

The wealth management industry is at its nascent stages in our country. However, thanks to a boost in investments by HNIs and UHNIs, the sector has been picking up pace and growing faster than ever before. While there is still a long way to go, the future seems promising.

Wealth Management is fiduciary in nature where experience and reputation triumph in the end. The definition of wealth management is ever-evolving owing to changing client expectations, growing talent in the sector, and the perception of the industry as a whole. Investors are increasingly sceptical of the industry, demanding more democratisation and accessibility. In return, wealth management institutions are responding to the said shift by reassessing their position. They are moving away from being merely a vendor of products to becoming a solutions partner.

Opportunities back home

India presents a plethora of opportunities with its own share of complexities. It has seen rapid urbanisation since the opening of its economy in the 1990s, caused by an increase in opportunities and a growing middle class. This new middle class ushered in a novel consumer base, one that was more experimental in nature and had an increased disposable income. This was a driving force in globalisation and played an important part in shifting geopolitics to the country’s favour. With the ongoing Russia-Ukraine crisis, prices soar high, something which has a direct impact on inflation, economy, and consumer spending. Thus, Indians are looking to safeguard their investments and assets against the volatility of the market.

Regulatory climate powering growth

Regulation is a key component of the wealth management industry when it comes to protecting the interests of consumers. Additionally, oversight by regulators helps capital move freely through the market and enables growth. The regulatory environment in India in recent years has become increasingly strong, thereby opening up new avenues for the general populace to invest in. Today, it is far easier for people to invest in different financial products ranging from simple mutual funds to complex instruments including PMS and AIFs offering opportunities in private markets and hedge funds using leverage from Co-lending and P2P Lending.

It is also important that regulation keeps pace with the evolving markets. A conundrum that we often observe is that regulators are not as fast on the uptake and when they are, it results in a cut in excesses across markets. Based on this, we can safely say that the future is truly bright.

Be it changes in distribution charges for PMS or the recent developments in AIF affecting regulations in PIPE, VC Funds, capping on invested in the investee’s company, or introduction of accredited investors; these key moves have made it easier for people to invest in complex instruments. Fair changes motivate both fund managers and investors to help build lasting relationships between them.

As consumers become more aware of the different asset classes and products available to invest in, it will benefit the industry and fund managers can offer the latest, cutting-edge products to them.

Tech proving to be a game changer

Technology has a very crucial role to play in wealth management. Technological offerings make it easier to customise offerings for a vast demographic and manage risks. This makes it simpler to assess the market and predict downward market trends through machine learning and artificial intelligence. This could also benefit investors looking beyond their geographical area to invest in offshore markets.

Thanks to efforts by the Govt of India and the RBI through products of NPCI tech, it has proven to be a game-changer for Indian investors who are increasingly using these tools.

Management institutions will eye to grow their invested capital to lure more customers, and through economies of scale, they would be able to do it at a very low cost to the consumers.

Be it tech-based products like PayTM, Groww, Scripbox that target retail investors or platforms like Dzerve in the B2C space, along with BeyondIRR in the B2B space or Kristal AI have brought the world to Indian Investors. The products in the tech-based space have indeed proven to be game-changers and are paving the way for a brighter future for the wealth management industry.

A sustainable development agenda

As the world becomes more conscious about emissions, investors, too, are moving towards a more sustainable and long-term value strategy. Divesting away from fossil fuel industries towards greener alternatives is an enormous pull for climate-conscious investors.

However, unlike the western markets, where environmental, social, and governance funds are driven by institutional participation, Indian markets are driven by retail investors who chase short-term performances. Long-term investment, in this case, will be driven by HNIs and UHNIs. India’s HNI and UHNI population is expected to grow rapidly as the industry continues to value long-term sustainable investment options over small-term gains.

Also Read | UWI or Unified Wealth Interface here to disrupt the wealth management ecosystem

This scenario, however, is slowly changing, with a slew of ESG funds launched by MFs in India which saw assets grow 5x. Initiatives like the one introduced by IndusInd’s ‘Green’ Fixed Deposits, which uses funds to finance projects that focus on the UN’s sustainable development goals are finding more acceptance among both retail and corporate customers. The attractive return rates that investors can avail of add to their popularity.

Looking at the future

Leading financial services firms are moving forward by applying data-driven insights across businesses. This helps them evaluate assets more accurately so they can provide tailored services such as private markets, investor education, diversified risk premiums, and more. Future-forward financial firms will do even better when they source the right talent that knows how to employ these technological advances in their businesses.

With customers being introduced to new AIF platforms, they get the benefit of a wide variety of choice along with competitive charges. It makes the sector vibrant.

According to Boston Consultancy Group, financial wealth in India is expected to increase at 10 per cent p.a. to US$ 5.5 trillion by 2025. Indian wealth management institutions need a combination of regulatory and technology adaptation to compete with their global counterparts. Being able to perform well in volatile markets, and choiceseffective use of technology proceeding with a sustainable agenda at the forefront can take wealth management firms to the next level. This in turn will work to strengthen the economy paving the way for robust wealth management in the country.

Views expressed by Rajnish Girdhar, Chief Executive Officer, Karma Capital.

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