Forbes India 15th Anniversary Special

Guiding the investment strategy for emerging affluent Indians - the drivers of the economy

Published: Sep 20, 2017 02:01:44 AM IST
Updated: Sep 20, 2017 12:06:57 PM IST

Guiding the investment strategy for emerging affluent Indians - the drivers of the economy
India is one of the youngest nations having a maximum workforce in the age group of 21-35 years. The economic boom of the country has brought surplus cash in the hands of this millennial generation. They have completely different aspirations from that of the previous generation. They want to follow a certain lifestyle, own vehicles, property, want kids to be educated in best schools and colleges and maintain the same standard of living post retirement.

This emerging affluent class is trying to be trendy, live and enjoy life. However, they fail to recognize the need to save in the right asset. They have the saving potential and they save as well, however in the same modes as that of their parents.  They have lots of pressing needs to save like longer life spans, rising cost of education, healthcare and property. It’s impossible to service their needs in the same old style of investments. A survey found that 60% of this population saves every month, and 17% of those save money on a weekly basis.

Surprisingly all of this money is invested in the traditional forms of investment. About 75% are parked in savings bank account and time deposits, and only about 20% are channeled to mutual funds. Their bulk of the deposits would yield a very meagre rate of return whose income will not match up with the raising costs.

The millennials have more time in hand as compared to middle age investor or those nearing retirement, to experiment investing in various classes of asset. They can afford to take high risk as even if loss is incurred in the short run it could be compensated in due course. If they really hope to meet their financial goals, they should indulge in age appropriate diverse asset spread. This should include equity for fulfilling long term needs, debt for emergency funds and liquid assets and a minimal exposure to real estate and gold. A perfect mix for those in the very early stage of work life would be close to 85-100 percent funds in equities, 15 per cent in debt and 5 per cent in gold or alternate investment. As they grow older the exposure to equity could be gradually reduced to increase the proportion of debt funds.  The basic idea is that the equity is more volatile in short term but when held for a long period of time it yields handsome returns.

Most of the population with ability to take high risks (21-35 years) doesn’t want to invest in risky zones because they find it very confusing and tedious. They are not well informed about the finance markets and would prefer hand holding to help them plan their finances.

There is an urgent need to educate them on the benefits of moving from savings to investment and show the various options of investments. As these people are digitally savvy, they should be given digital tools to manage and monitor the growth of their investments.
The emerging affluent class of the society who are earning enough to start saving and investing are the crucial engines of economic growth. Therefore, care should be taken to address their needs and devise specialized investment plans to match their requirements. These should be effectively communicated to them to win their confidence and get their cash in the mutual funds and equity. This will help the economy prosper.

Most investment houses have realized these factors and are tuning themselves to target the emerging affluent to guide them to save for tomorrow. Surbhi Upadhyay had a detailed conversation on investment options available for the younger generation with Nitin Singh, MD and Head of Wealth Management at Standard Chartered; Anshu Kapoor, Head of Global Wealth Management, Edelweiss and Nilesh Shah, MD, Kotak AMC. The central topic of discussion was on the saving patterns of emerging affluent India and what can be done to attract them to join the equity and mutual funds bandwagon.

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