net worth of india’s ultra hnhs to grow 5 times to 235...

Net worth of India’s ultra HNHs to grow 5 times to ` 235 trillion by 2015-16

T.O.P. India - Decoding the ultra HNI

What sets the ultra HNI as a class apart?What sets the ultra HNI as a class apart?

Value and size of assets

Scale and visibility of spends

Networks of influence

The power they wield

Social visibility and hierarchy

FOREWORD

Ultra high net worth individuals ( HNIs) are the crème de la crème of society, in virtually all respects – be it

in terms of riches, power and status, or even lifestyle. In India, over the past few years, the economic boom has

propelled many already-rich people, and a few other first-time entrepreneurs and technocrats into this

exclusive club, and resulted in a significant burgeoning of the number of ultra HNIs. One barometer of this is

the growing number of Indians who figure in the Forbes Billionaires list that is released every year.

Barring unforeseen circumstances, there is no turning back of the clock on the spectacular India growth story.

As the ultra HNI segment grows, wealth managers will inevitably feel the need for greater knowledge on the

segment, particularly in terms of its behaviour on spending and investments, so that they can provide

suitable, timely advice. So will marketing and strategic managers of companies that specialise in ultra luxury

products and services. Many others will benefit as well.

It is therefore an appropriate time to try and understand the ultra HNIs, in particular their behavioural aspects

when it comes to issues such as spending and investing. This report does just that, revealing new unexpected

trends, debunking some lingering myths and reaffirming some well-known beliefs about the super rich.

Kotak and CRISIL are extremely proud to present this inaugural edition of their report ‘Top of the Pyramid.’ Our

choice of the title is a reflection of who this report is about: the finest of the finest, the best of the best –

The ultra high net worth individual.

Happy reading.

C Jayaram Roopa Kudva

Executive Director Managing Director and CEO

Kotak Mahindra Bank Ltd. CRISIL Ltd.

ultra

About the Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 01

Executive Briefing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 04Key findings of the report

Graphical Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 07Visual snapshot of the research findings

Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Profiling: The Inheritor, the Self-made and the Professional . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151. What sets ultra HNIs apart from other classes of Indian society?2. What are the different routes to earning wealth?3. How can we classify ultra HNIs based on their motivation towards

creating wealth, spending and investing?4. What are their attitudes towards leaving wealth for their family

and contributing to charitable causes?

Spends: Attitudes, Motivation and the Ultra Wealthy Lifestyle. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 231. What proportion of their income do ultra HNIs spend?2. What products do they prefer to spend on?3. What motivates their spending on luxury brands?

a. Travelb. Luxury watchesc. Jewellery and precious stonesd. Luxury carse. Household electronicsf. Apparel and accessories

Investing: Risk, Return and Wealth Preservation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 391. What proportion of their income do ultra HNIs invest?2. What are their investment goals?3. How do attitudes towards risk and return shape their investments?4. What asset classes do they prefer?5. How do they manage investments?

I N S I D E T H E R E P O R T

ABOUT THE REPORT

The phenomenal growth in the number of the super rich has laid the

foundation for an unprecedented expansion of the wealth

management industry in India. Inevitably, it is also driving the entry

and growth of luxury brands that cater exclusively to the tastes of the

ultra high net worth individuals (UHNIs).

For both wealth managers and luxury brand companies, one major

hurdle to their effective functioning and growth is the almost

remarkable dearth of information on the earning, spending and

investing trends of the ultra wealthy.

In this report, the first of what will be an annual edition, we have laid the

broad framework and detailed the methodology to define who an ultra

HNI is. Considering the attention that they have been getting in recent

times, it was also quite tempting to focus on what their numbers are

and who has how much wealth.

Instead, the spotlight in this inaugural year is on behavioural aspects,

such as what drives these individuals, what their priorities or motives

are when it comes to spending or investing, and whether there is any

homogeneity in their actions as a class.

The conclusions are extremely revealing, and a lot of meaningful

insights, some even positively surprising, have emerged from the

analysis. We believe that the takeaways gleaned from this report will be

invaluable for people who manage the wealth of the ultra rich, and will

help niche companies operating in the segment to come up with more

innovative marketing or distribution strategies for their products.

Kotak and CRISIL seized the opportunity to create a report that analyses

and tracks these trends year on year with specific reference to the

Indian market. Kotak is a pioneer and leader in the private banking

space in India. Its Wealth Management team caters to over a quarter of

the 100 most wealthy (as per the Forbes India Rich List - 2011) in India.

CRISIL Research is India’s largest independent research house,

providing comprehensive research coverage to more than 1,200 Indian

and global customers.

This report is based on two main strands of research.

1) A series of interviews were conducted with senior personnel at

major global luxury brands, art gallery owners, product dealers

and industry body representatives.

2) We commissioned a market survey of 150+ ultra HNIs, with

conversations lasting up to one hour. The respondents were

spread across the three major metros, namely Mumbai, Delhi and

Bengaluru, as well as Hyderabad, Ahmedabad, Chennai, Pune, and

Kolkata (referred to as Other cities in this report). A majority of the

respondents (77 per cent) were from the three major metros. The

survey took place between December 2010 and February 2011.

CRISIL Research then undertook an extensive analysis of the results of

the survey, and every conclusion was subject to the same analytical

rigour and review process that is the hallmark of all CRISIL Research

reports.

This report would not have been possible without the co-operation of

all the survey respondents and the interviewees. We thank them for

their invaluable support, the time they put at our disposal, and the

insights they offered.

Completing a successful 25 year run, Kotak is a leading banking and

financial services organisation in India, offering a wide range of

financial services that encompass every sphere of life. From services

like Family Office for ultra HNIs, to Wealth Management for HNIs, to

About Kotak Group

T.O.P. India - Kotak Wealth & CRISIL Research 01|

commercial banking, car finance, stockbroking, asset management, life

insurance, investment banking, the Group caters to the financial needs

of individuals and corporates.

In February 2003, Kotak Mahindra Finance Ltd., the Group's flagship

company, was given the licence to carry on banking business by the

Reserve Bank of India (RBI). This approval created banking history since

Kotak Mahindra Finance Ltd. was the first non-banking finance

company in India to convert itself into a bank as Kotak Mahindra Bank

Ltd.

The Group has a net worth of ̀ 109.63 billion and a distribution network

through branches and franchisees across the country and offices in

New York, California, London, Dubai, Abu Dhabi, Bahrain, Mauritius and

Singapore, servicing close to 8.8 million customer accounts.

The Kotak Group offers the understanding, the experience, the

infrastructure and most importantly the commitment to deliver

pragmatic end-to-end solutions.

Kotak has one of the oldest and most respected Wealth Management

teams in India, providing solutions to high net worth individuals.

Over thirteen years, a wide range of wealth management solutions has

made Kotak Wealth Management the largest player. Our client base

ranges from entrepreneurs to business families to employed

professionals.

On the investment scenario, we believe that no one asset class tends to

perform consistently over a long period of time. Therefore, an HNI

needs to be given access to various asset classes, investment styles,

themes and tenures. Thanks to this focus of the Group, we have built

a formidable suite of products and services straddling this spectrum.

About Kotak Wealth

Our offering is customised, based on the client’s profile and investment

objectives.

The Kotak Wealth umbrella also includes Family Office Services.

Through Family Office Services, we go beyond investments to provide a

host of value-added services such as Estate Planning Services, tax

optimisation, etc.

Kotak Wealth Management was recently awarded the ‘Best Private

Banking Services Overall, Best Family Office Services - India’, in the

Euromoney’s Private Banking Poll - 2011 and ‘Best Private Bank - India’ in

FinanceAsia Country Awards - 2010.

We have maintained our leadership position, thanks to the macro

environment, in-depth understanding of the clients’ requirements and

of the various asset classes. This has resulted in Kotak being in a position

to offer the widest range of solutions for the client.

CRISIL is a global analytical company providing ratings, research, and

risk and policy advisory services.

We are India’s leading ratings agency. We are also the foremost

provider of high-end research to the world’s largest banks and leading

corporations. With sustainable competitive advantage arising from our

strong brand, unmatched credibility, market leadership across

businesses, and large customer base, we deliver analysis, opinions, and

solutions that make markets function better.

Our defining trait is our ability to convert data and information into

expert judgements and forecasts across a wide range of domains, with

deep expertise and complete objectivity.

At the core of our credibility, built up assiduously over the years, are our

About CRISIL Limited

02 T.O.P. India - Kotak Wealth & CRISIL Research|

values: Integrity, Independence, Analytical Rigour, Commitment and

Innovation.

CRISIL’s majority shareholder is Standard and Poor’s (S&P). Standard &

Poor’s, a part of The McGraw-Hill Companies (NYSE:MHP), is the world’s

foremost provider of credit ratings.

We address a rich and globally diversified client base. Within India our

customers range from small enterprises to the largest corporations and

financial institutions; outside India our customers include the world’s

largest banks and leading corporations. We also work with

governments and policymakers in India and other emerging markets in

the infrastructure domain.

We empower our customers, and the markets at large, with

independent analysis, benchmarks and tools. These help lenders and

borrowers, issuers and investors, regulators, and market intermediaries

make better-informed investment and business decisions. Our

offerings allow markets and market participants to become more

transparent and efficient - by mitigating and managing risk, taking

pricing decisions, generating more revenue, reducing time to market

and enhancing returns. By helping shape public policy on

infrastructure in emerging markets, we help catalyse economic growth

and development in these countries.

CRISIL Research is the country’s largest independent and integrated

research house with strong domain expertise on Indian economy,

industries and capital markets. We leverage our unique research

platform and capabilities to deliver superior perspectives and insights

to over 1,200 domestic and global clients, through a range of research

reports, analytical tools, subscription products and customised

solutions.

About CRISIL Research


Seeds of a luxury revolutionIn slightly under two decades, India has undergone a radical

transformation from being a largely agrarian economy with a modest

growth rate into one of the world’s most dynamic economies. Its GDP

has grown at an average of over 8 per cent per annum over the past

three years and is estimated to have grown by 8.6 per cent in the most

recent fiscal year, making the country the second-fastest-growing

economy in the world, next only to China.

Propelled by this economic boom, there has been an unprecedented

level of wealth creation. Average income levels have risen manifold and

many individuals have suddenly become millionaires. The resultant

quantum increase in money available for spending, and the country’s

increased integration with the global economy have widened the

population’s exposure to major global luxury brands and triggered

a luxury revolution.

Entrepreneurship is clearly the dominant source of domestic wealth,

but fast-growing service industries such as technology and financial

services have also catapulted many hitherto middle-income group

individuals into the ultra high net worth individual (ultra HNI) bracket.

CRISIL Research has defined an ultra high net worth household (ultra

HNH) as one having a minimum average net worth of ` 250 million,

which, as per our proprietary tool ‘IDeA’ (Income and Demographics

Analysis), gets mapped to a minimum income of ̀ 35-40 million.

The total net worth of Indian ultra HNHs is expected to reach ` 235

trillion in 2015-16 from an estimated ̀ 45 trillion in 2010-11.

At present, there are no validated estimates of the number of ultra

HNHs in the country. Kotak Wealth and CRISIL Research estimate that

there are around 62,000 ultra HNHs in India as of 2010-11, with a

minimum net worth of ̀ 250 million. This number represents a meagre

0.03 per cent of the total households in India, but is poised to more than

triple to 219,000 households by 2015-16.

What sets ultra HNIs apart from other classes of individuals in the

country is the sheer value and size of the assets they own. The dramatic

increase in personal wealth has also brought about a change in

attitudes towards spending; public displays of opulence, which would

have been unthinkable a few years ago, are now not uncommon.

Although this is creating exciting new opportunities for wealth

managers and luxury brands, their ability to perform effectively is

being hindered by the absence of adequate information on ultra HNIs,

in terms of their attitudes to investing and spending.

Kotak Wealth and CRISIL Research undertook a survey to gauge various

aspects of ultra HNI behaviour and uncover important trends therein.

We found that today’s ultra HNI is not, in general, a reclusive individual.

On the contrary, he is more likely to be a constant feature on television

channels or on Page 3 of newspapers, and is comfortable in (some

might even say seeks) the limelight.

They are the cream of society, know that they are, and seek to maintain

a lifestyle in keeping with their social standing. Consequently, they are

highly brand conscious, and in some cases, have strong brand loyalties.

In many cases, therefore, price is not the only consideration guiding a

purchase.

In absolute terms, they are very heavy spenders, be it on high quality

homes, food, clothing, or the luxuries of life in entertainment,

education, travel and family vacations. They are also finding new ways

to splurge, such as on buying art and artefacts, yachts, and islands, or

Key trends

EXECUTIVE BRIEFING


even on underwater weddings, chartering aircraft to go on holidays or

watch sports, entertainment events, and partying.

Contrary to the belief in some quarters that they are highly

individualistic, our survey revealed strong family bonds and

dependence, when it comes to decision-making on spending or

investments.

The spending on, and choice of big ticket items such as holiday

packages, luxury watches, diamonds and jewellery, household

electronics (which include premium mobiles and high-end cameras),

and home décor is carried out in consultation with the family. The

family plays an important role in, for instance, identifying a holiday

location, or choosing a home theatre brand. Appeal and price are,

therefore, important considerations in planned purchases.

It is only on items such as apparel, accessories, or liquor that an ultra

HNI’s personal predilections and impulses come into play. Impulse

purchases are usually done at the airport (duty-free shops) or while

travelling, and purchases are made largely on how eye-catching the

product is, in addition to the brand, the newness of the product and

exclusivity. The need for the product is not a factor in impulse

purchases; but having cash in hand is.

Likewise, while making investments, ultra HNIs take advice from family,

close friends, trusted advisors and professionals such as chartered

accountants and lawyers. Legacy for the spouse and children, social

security and regular income are important factors that guide their

investments. Possibly because of this, they are willing to take far lesser

risk on their investments compared with what they are willing to take

in their business.

Most ultra HNIs are distinguished individuals in social networks of

power and influence. Their long-standing network of elite contacts

gives them differentiated access to business opportunities, and they

try to put it to good use to further expand their wealth.

Interestingly, today’s ultra HNIs would typically include business

people who own enterprises with a turnover of ` 750 million or above,

corporate executives, established professionals, politicians, traders,

builders and agricultural landowners, unlike before Independence

when they were more likely to be the upper classes or the nobility.

Based on the results of the survey, Kotak Wealth and CRISIL Research

have classified India’s ultra HNIs into three groups:

• Inheritors

• Self-made

• Professionals

Inheritors are born with a silver spoon, and have inherited high net

worth; Self-made are first generation entrepreneurs whose success in

business turned them wealthy; and Professionals are qualified, highly

skilled professionals who gained wealth because the companies that

employed them grew big.

The wealth dynamics and behavioural traits of each of these groups

are unique, and wealth managers and luxury brands will face diverse

challenges in their dealings with them.

Most people agree that barring unforeseen circumstances, the long-

term India growth story is intact. As noted earlier, this will result in a

significant increase in the number of ultra HNIs in the country.

For wealth managers and luxury brands, this will mean an appreciable

increase in their addressable market. This will necessitate not only an

increase in the type and nature of products that they offer to this

segment, but also greater awareness about behavioural trends with

regards to spending and investment by ultra HNIs. This will allow

wealth managers and luxury brands to evolve more innovative

Conclusion


marketing strategies and target their products in better, more effective

ways.

It is also evident that the segment of high net worth individuals will

spawn the next wave of ultra HNIs. Wealth managers and luxury brands

who are able to engage this segment productively and establish

profitable (in every sense of the term) long-term relationships will find

that they will have a first mover advantage when these people

transition from being high net worth individuals into ultra HNIs.

This will entail development of a greater range of products,

consistently high standards of quality of service and, critically, the

right pricing. Here, to avoid familiar pitfalls, some of the new luxury

entrants would do well to analyse the experience of multinational

companies in India.

Some of the multinational companies that forayed into India have

become successful because they jettisoned pre-conceived notions and

strategies that worked elsewhere and adopted techniques that took

into account the local ethos, culture, and tastes to build lasting brand

loyalties.

Kotak Wealth and CRISIL Research believe that this report will be a

useful tool in the hands of both wealth managers and luxury brands. It

will help them to engage more effectively and productively with their

ultra HNI clients while making investment decisions and may also

enable them to gain invaluable insights that will help them increase

their business.


Overview

* Forbes India Rich List - 2011Source: T.O.P. India - Kotak Wealth & CRISIL Research

2011

11,090

55Indians

=billion

1996

billion3 = 212

Indians

2004

billionIndians8 = 1,157

Net worth ( ` billion )

From 3 to 55: The rising number of Indian billionaires in the Forbes rich list

India now has a record number of 55 billionaires*. The country is next only to the United States and China in the number of billionaires.

GRAPHICAL SUMMARY

If we consider a household with a minimum net worth of ` 250 million, there are around 62,000 ultra HNHs in India as of 2010-11.

Source: T.O.P. India - Kotak Wealth & CRISIL Research

2010 -11 E62,000

2015 -16 P219,000

219,000 by 2015-16ultra wealthy households in India

E: Estimated P: Projected


Net worth ofUHNHs

2010-11 E

` 45 trillion ` 235 trillion

2015-16 P

Net worth of India’s ultra wealthy households to increase by more than 5 times over the next 5 yearsThe total net worth of Indian ultra HNHs, is expected to reach ` 235 trillion in 2015-16 from an estimated ` 45 trillion in 2010-11.


E: Estimated P: UHNH: Ultra high net worth household

Projected


Spending patterns

Home decor / Crystals

Jewellery / Precious stones

Household electronics

Luxury watchesExclusive

holiday packs

82%

17%1%

57%

37%6%

56%

43%1%

54%

44%2%

41%

58%

38%

59%3%

Vintage spirits / Liquor

Apparel / Accessories

Luxury writing instruments Art / Artefacts

67%

28%5%

42%

58%

39%

61%1%

BothPlanned Impulse


Big-ticket spends are planned in advance, often with family involvementIn most purchases, such as holiday packages, luxury watches, jewellery, household electronics, and home décor, the family plays a paramount role, considering the huge spends involved.

Note: The data values have been indexed to Exclusive holiday packs.Source: T.O.P. India - Kotak Wealth & CRISIL Research

Ultra HNIs prefer to spend more on products meant for the familyA significant portion of overall expenditure goes into customised holiday packages, luxury watches, jewellery, and household electronics.

Luxury writing

instruments56

Home decor /Crystals

57

Jewellery /Precious stones

90

Apparel /Accessories

73

Householdelectronics

90

Exclusive holiday packs

100

Luxury watches

98

Art /Artefacts

36

Vintage spirits

52


19.3%

20%

6.3%

3.9%

22.4%

28.4%

19.7%

Investment for growing personal wealth

Savings

Expenses

Investment in primary business

Charity / Philanthropy

Others


Ultra HNIs invest one-fifth of their income for growing their wealthBut they put a greater proportion back into their business to fuel the engine of wealth creation. This stems from a desire for a sense of control. Most ultra HNIs would rather invest in their own business rather than in instruments where they have no control.

Ultra HNI's investing strategy has been simple so far...


37.2% 20.4% 9.3%33.1%

Equity Debt Alternate assetsReal estate

Investment

...but their investments in more complex assets are poised to rise

Alternate assets


9.3% 11.2%

20.4% 18.2%Debt

Equity 33.1% 30.1%

9.5%

20.8%

31.6%

38.1% 37.2% 40.5%Real estate

2009-10 E 2010-11 E 2011-12 P



INTRODUCTION

The Land of Maharajas is hardly a stranger to opulence and luxury.

Before Independence, some of India’s rulers and landed gentry were

among the richest in the world. If the Nizam of Hyderabad was a legend,

who can forget his family of prime ministers, the Salar Jung family. Their

family property was so vast that a museum, named after the household,

houses the biggest one-man collection of antiques in the world, that of

the last prime minister.

But post-Independence, such opulence had become anathema and

consumerism was a dirty word in the Indian lexicon. So, what caused

this turnaround and what is driving this luxury renaissance in the

country?

The answers to these questions are not difficult to find. The collapse of

the Soviet Union in the late Eighties ended the Cold War and coincided

with a global revolution in information technology, a segment that the

Indian corporate sector embraced and gained a leadership role in.

Simultaneously, successive Indian governments unleashed a series of

economic reforms that freed the economy, promoted entrepreneurship,

and encouraged capital and wealth creation. As the country’s GDP

growth zoomed towards the high single digit mark, growth was

unleashed in the ITeS (information technology enabled services)

sectors, capital markets opened up, average income levels rose

multifold and many suddenly found themselves to be millionaires –

first rupee millionaires and then dollar millionaires. Suddenly, there

were riches everywhere and money in the pockets waiting to be spent,

even as the country’s increased integration with the global economy

widened the population’s exposure to major global luxury brands.

It was, and continues to be, a situation tailor-made for the luxury

revolution.

So, for instance, a Mumbai-based builder is offering exclusive homes,

in the nation’s financial capital, each with a private swimming pool and

whose interior will feature some of the world’s leading luxury brands

such as Bulthaup, Antonio Lupi, Dornbracht, Gessi, and Villeroy and

Boch.

* Forbes India Rich List - 2011Source: T.O.P. India - Kotak Wealth & CRISIL Research

2011

11,090

55Indians

=billion

1996

billion3 = 212

Indians

2004

billionIndians8 = 1,157

Net worth ( ` billion )

From 3 to 55: The rising number of Indian billionaires in the Forbes rich list


The apartments are being offered at a whopping base price of nearly

$1.5 million, and the really top-end ones are expected to go at 10 times

that. That price is comparable to the really high-end homes in exotic

locations in Manhattan, Beverly Hills and Florida.

Today, an Indian holds the distinction of owning what is believed to

be the world’s most expensive residence – the Antilla in Mumbai, which

took seven years to build, is bigger than the Palace of Versailles in

France.

It is a sign of the times that hardly a day goes by without the

announcement of the entry of a global super luxury brand into India. If

yesterday it was the Bugatti Veyron, today it is the Koenigsegg Agera

and the Maserati. Exotic cars such as the Veyron and the Agera cost in

excess of ` 120 million each. Contrast that with 25 years ago, when it

needed a Ravi Shastri and his heroics in the World Championship of

Cricket in Australia to make known the Audi in India.

According to some projections, by 2050, an average Indian’s standard

of living would be what it is in Spain today. More importantly, the

country would be possibly home to the largest number of billionaires in

the world, with the possible exception of China.

India now has a record number of 55 billionaires, according to the

Forbes India Rich List – 2011. The country is next only to the United

States and China in the number of billionaires. The combined wealth

of India's 55 richest is $246.5 billion, much higher than last year's total

of $222.1 billion. It is also more than the combined GDPs of Pakistan

and Sri Lanka.

A few years ago, such public displays of opulence would have been

unthinkable. But attitudes are changing and that trend is unlikely to

reverse, because, barring any unforeseen circumstances, there is near-

consensus globally that the India growth story will endure in the long

run.

All this does, therefore, beg the question: who are these ultra high net

worth individuals (ultra HNIs)? And what drives their spending and

investment behaviour? Are there any lessons therein, for luxury brands,

wealth managers and others?

Wealth is often measured in terms of assets and money. But defining

wealth solely on the basis of assets would be arbitrary. Wealth today is

also about attitudes and lifestyle. It is, thus, also important to factor in

the variations in standards of living around the world, as they serve as

indicators to define the luxury and privilege that a household’s wealth

can purchase. Relative perceptions of wealth also differ according to

the geographical locations, because economic factors, cost of living

and concentration of wealth differ from city to city. Even within a city,

these differences can be substantial.

Consequently, Kotak Wealth and CRISIL Research believe that

international yardsticks to define a high net worth individual are not

suitable in the Indian context. For instance, inheritance is not a primary

wealth forming segment in India, unlike in Europe that has been rich for

over 25-30 decades. Also, India has always had plenty of enormously

wealthy people such as landlords, royalty, rich farmers and traders, who

do not discuss their assets with financial institutions. This is because of

deep-rooted cultural moorings of keeping money matters strictly

private. India’s wealth dynamics are unique and need to be explored

appropriately.

Defining ultra high net worth households

Keeping this context in mind, and for the purpose of this report, CRISIL

Research has defined an ultra high net worth household (ultra HNH) as

one having a minimum average net worth of ` 250 million (as of 2010-

11) accumulated over the past 10 years, which as per our proprietary

tool ‘IDeA (Income and Demographics Analysis) gets mapped to a

minimum income of ̀ 35 to 40 million.

’


The total number of households which lie above this minimum average

net worth of ` 250 million form a meagre 0.03 per cent of the total

households in India as of 2010-11. Households above this threshold

net worth would provide a sizable addressable market for luxury

brands and services in other cities as well, in addition to Mumbai and

Delhi, which makes it easy to gauge city-wise patterns of attitudes and

behaviour for these households. For these reasons, Kotak Wealth and

CRISIL Research have used ` 250 million as the base net worth for

defining an ultra HNH.

Size of ultra HNHs in IndiaIn less than two decades, India has been transformed from a slow-

growing agrarian country into one of the world’s most dynamic

economies. The country’s GDP has grown at an average of more than

8 per cent annually over the past 3 years and is estimated to have grown

by 8.6 per cent in the most recent fiscal year, making India the second-

fastest-growing major economy in the world. This economic boom has

led to an unprecedented level of wealth creation.

Net worth ofUHNHs

2010-11 E

` 45 trillion ` 235 trillion

2015-16 P

Net worth of India’s ultra wealthy households to increase by more than 5 times over the next 5 years


E: Estimated P: UHNH: Ultra high net worth household

Projected


The total net worth of Indian ultra HNHs is expected to reach ` 235

trillion in 2015-16 from an estimated ̀ 45 trillion in 2010-11.

If we consider a household with a minimum net worth of ̀ 250 million,

there are around 62,000 ultra HNHs in India as of 2010-11, estimates

Kotak Wealth and CRISIL Research. Although this number represents

a meagre 0.03 per cent of the total households in India, it is poised to

more than triple to 219,000 households by 2015-16.

If we consider a household with a minimum net worth of ` 250 million, there are around 62,000 ultra HNHs in India as of 2010-11.


2010 -11 E62,000

2015 -16 P219,000

219,000 by 2015-16ultra wealthy households in India



Profiling:

The Inheritor,

the Self-made

and the Professional

It is raining billionaires in India, never mind the fact that a major chunk

of the country's huge population still grapples with poverty. And these

billionaires come from diverse backgrounds.

Consider, for instance, a well-known industrialist, and a Forbes

billionaire. In 2010, Forbes estimated his net worth at US$1.0 billion,

making him one of India’s Top 50 richest persons. A farmer's son, he got

his first break in his uncle's construction business in Hyderabad. The

first project that he handled was to build a dam. He then started his own

construction venture. Subsequently, however, he left India to set up a

factory to manufacture laminated particle boards in the US. He

returned to India in 1992, attracted by opportunities to help build

India's infrastructure. He quickly moved into the power industry,

building India's first power plant in the private sector. He made news in

2006 by winning the bid to modernise the Mumbai airport, a project

headed by his son. He also has interests in hotels in partnership with a

leading luxury hotel chain in India.

Obviously, what sets ultra HNIs apart from other classes of individuals in

the country is the sheer value and size of the assets they own. After all, it

is not every day that one goes and buys an island to fulfill a whim,

maybe, but there are a few Indian ultra HNIs who have done precisely

that.

The era of socialism has ended, at least as far as public displays of wealth

are concerned.

In absolute terms, ultra HNIs are also very heavy spenders, be it on high

quality homes, food, clothing, and the luxuries of life in entertainment,

education, travel and family vacations.

Today’s ultra HNI is not, in general, a reclusive individual.

On the contrary, he is more likely to be a constant feature on television

channels or on Page 3 of newspapers, and is comfortable in (some

might even say seeks) the limelight.

Wealth is power is no empty adage. Most ultra HNIs are distinguished

individuals in social networks of power and influence. Their long-

standing network of elite contacts gives them differentiated access to

business opportunities.

Today’s ultra HNIs would typically include businesspeople who

own enterprises with a turnover of ` 750 million or above, corporate

executives, established professionals, politicians, traders, builders,

and agricultural landowners. In that sense, evidently, wealth is a

great leveller.

With such a variegated mix of people, it is interesting to delve into how

they behave as a class, if at all they do. Or, are there innate differences

that are triggered or governed by more latent aspects of behaviour?

Kotak Wealth and CRISIL Research ventured to study precisely that.

We concluded that ultra HNIs fall into two broad categories:

• Old money: This is essentially inherited money and comprises

people who have inherited wealth or businesses.

• New money: This includes the newly rich who come from all walks

of life and those who have made money through mega salaries,

bonuses and stock options, and those who have started their

businesses on their own and made their fortunes.

One interesting aspect of this class today is heterogeneity; they come

from all social backgrounds, unlike before Independence when they

were more likely to be the upper classes or the nobility.

Entrepreneurship is clearly the dominant source of wealth in India,

but fast-growing service industries such as technology and financial

services too have catapulted many hitherto middle-income group

individuals into the ultra HNI bracket.

PROFILING


Based on the results of the survey, Kotak Wealth and CRISIL Research

have classified ultra HNIs into three groups:

•

• Self-made

• Professionals

Inheritors are born with a silver spoon, and have inherited high net

worth; Self-made are first generation entrepreneurs whose success in

business turned them wealthy; and Professionals are qualified, highly

skilled professionals who gained wealth because the companies that

employed them grew big. The wealth dynamics of each of these groups

are unique.

If the way in which they made their money is interesting, even more

noteworthy is the finding that these three types of ultra HNIs differ

markedly in their patterns of spending and investment. To understand

these three ultra HNI profiles better and deeper, we have examined

them in terms of several factors.

1) Sources of wealth

Along with the traditionally wealthy business class who have

generated significant wealth from an inheritance, a new breed of ultra

HNIs, who have earned their money through their job (in thriving

sectors such as telecom, IT / ITeS and financial services) or through

ownership of business, has emerged.

2) Motives for wealth creation

‘Spend on the present and save for the future’ are clearly the motives for

wealth creation for most ultra HNIs. For many, financial security in

retirement is paramount, followed by a better personal lifestyle, while

for some others, the financial security of children and family is a priority,

apart from philanthropy.

Inheritors

3) Spending patterns

The expense structure or spending pattern of ultra HNIs is determined

by factors such as the prevalent lifestyle and standard of living in a

particular city, in addition to individual and familial preferences of ultra

HNIs in terms of products and brands.

4) Investing patterns

Compared with the risks they are willing to take while acquiring wealth,

ultra HNIs are typically conservative with the level of risk when it comes

to their investments in stocks and shares, bonds, property,

commodities such as gold, and in alternate assets, such as antiques

and art. Increasingly, however, as they gain greater knowledge,

understanding and confidence about alternate asset classes, many

ultra HNIs are investing in vehicles that are generally considered to be

at the riskier end of the financial spectrum, such as hedge funds, private

equity, structured products and derivatives.

5) Attitude to ‘giving’

There are a multitude of reasons why today’s ultra HNIs give to charities.

For one, today’s ultra HNI is more socially aware and feels a sense of

responsibility to give back to society. Another factor is that today’s ultra

HNIs feel that they can make an impact on some of the global causes by

giving to charities.

6) Perpetuation of wealth

The passing on of wealth from one generation to the other is a common

human trait; some are more privileged to get substantial inheritances.

Although average wealth has gone up and entrepreneurship has

grown, financial legacy for dependents still remains an important

motivating factor for ultra HNIs.


EntrepreneurshipInheritance;entrepreneurship

Self-recognition

Value

OrganisedInformal

The ProfessionalThe Self-madeThe Inheritor

Empowerment; rarely gives time

Compassion; gives money, less time

Wealth is unconditionally for immediate family

Wealth is for family, but they must strive to merit wealth

Attainingluxurious living

Wealth preservation

Self-actualisation

Maintainingluxurious living

Responsibie and conscious; gives money and time

Wealth needs to remain within the extended family

Professional

Sources of wealth

Motives for wealth creation

Drivers of spending

Approach to investing

Attitude to charity

Attitude to perpetuation of wealth

Decoding the DNA of the ultra HNI

The Inheritors

Being born into an ultra wealthy family gives them an enhanced

standard of living and access to a distinct set of privileges such as

education in prestigious institutions, financial capital to start their own

business, and access to influential social networks.

The original connoisseurs, this group comprises of people who have

inherited wealth or businesses from their forefathers.

And, not to mention, unique, rather expensive tastes. “I travel to London

to watch opera twice a year,” one of our respondents said, matter-of-

factly.

There is a flip side to this, though. Untold inherited riches can bring

along with it incalculable pressure – the pressure of preserving, if not

multiplying, inherited wealth; the pressure of making a mark in life and

proving themselves worthy of the inheritance, and ensuring that the

next generation sustains the family’s hard-earned wealth.

“I don’t know how capable or interested my kids would be taking over

the business,” one of them wondered aloud. “Having built so much, I

want to pass it on into capable hands.”

Inheritors relish challenges, tend to remain actively involved in their

business and believe that they need to keep working hard to grow their

wealth, a trait they share with the Self-made.

Apart from inheritance, the Inheritors surveyed for this study cited

success in their primary business and economic investments – notably

in real estate and equity markets – as the main contributors to their

wealth.

They are the cognoscenti, used as they are to luxury and luxury brands.

Interestingly, many of them prefer to purchase their favourite

international brands from abroad even if they are available in India. This

appears to be either for nostalgic reasons or because of the mental

comfort associated with similar purchases abroad in the past, or in

some cases because their longer period of association with luxury

brand marketers gives them access to privileged or customised

services. And they are likely to combine shopping abroad with holidays

overseas with family.

Because they are so wealthy and successful, and recognised in their

social niche, they do not feel the need to make any style statements,

even though they tend to identify themselves very closely with a brand,

and view it as a means to reflect their social standing.

So, for every one of them who dangles a Patek Philippe or a Breguet

watch, or maybe even a Franck Muller or an Audemars, there will also be

a “I proudly wear the watch which my 11 year old daughter presented

(purchased for ̀ 690) with her pocket money” type.

Because of their strong brand affinity, price is not really a criterion for

Inheritors for owning a brand, again a trait that they share with the Self-

made.

Our survey indicated that, for the Inheritors, the top spends on self are

luxury watches, designer clothing, personal accessories, and luxury

writing instruments. But the big-ticket spending is reserved for the

family; the major spends are on exclusive holiday packages, jewellery

products and household electronics.

Inheritors are generally impulsive when it comes to spending on

themselves, with exclusivity and brand popularity primarily guiding

In general though, Inheritors are highly evolved brand users;

consequently, they have higher propensity to experiment with brands

or be among the earliest in their circle to adopt a new brand. Therefore,

they remain clued on to the latest trends in styles and brands in their

social circles.


their impulse buying. They plan their spending on family in advance.

Although family members are equal participants in planned spending,

Inheritors keep an eye on exclusivity. Our survey indicates that they are

also great followers and collectors of art, and not purely for investment

purposes.

They distribute their investments across asset classes, with a greater

emphasis on real estate – about 40 per cent – and equity – about 30 per

cent. Their real estate investments are diverse – villas, apartments,

resorts and holiday homes, commercial buildings (which could be for

their own use), agricultural land and plantations, and vacant land.

Just as they utilise the services of professionals to run their businesses,

the Inheritors also take the services of professionals such as wealth

managers, chartered accountants, financial planners, and lawyers to

manage their investment portfolio.

The traditionally wealthy tend to have established systems for

succession of wealth, and mechanisms for passing wealth from one

generation to another. These systems, however, seem to be

progressing with the times. Inheritors are still most likely to transfer the

family estate to an heir. While they would retain business ownership

within the family, they could leave the onus of running the business to

professionals, a relatively newer practice.

This group comprises ultra HNIs who started on their own and have

worked diligently to make a name in their business circles.

A standout feature that was revealed in the survey was that although

they take risks to acquire wealth, Inheritors are far more risk-averse

when it comes to investment.

The Self-made

They are

constantly in search of avenues to increase their wealth and have an

inherent desire to be recognised as rich.

They strongly believe that possessions are a hallmark of those who

have succeeded and those who haven’t.

Responding to our survey, a majority of the self-made entrepreneurs

listed success in their primary business, investment in real estate and

diversification of their business as the top three contributors to their

wealth. They actively engage in running their day-to-day business and

intensely involve themselves in their spending and investing decisions.

The Self-made are calculated risk-takers, highly driven individuals and

are constantly on the lookout for new ways to grow their wealth.

Having made their wealth through success in their primary business,

the Self-made believe that entrepreneurship is the road to sustaining

their wealth. So they tend to own multiple businesses.

“You will never see me as a retired person; we have already earned

enough to maintain our status and now work gives us pleasure,” one of

them, who qualifies to be in this group, said.

The Self-made attribute their success in business to hard work and

effective networking. They divide their time between running their

business and networking with their business contacts. They always

tend to look for occasions for networking and making new business

contacts.

For the Self-made, life revolves around their work, and they have very

little time for anything else. According to our survey, the Self-made

tend to have a latent desire to enjoy life to the fullest. However, their

challenging work schedule is sometimes a hindrance in the way of their

fulfilling that desire, as also their other goal of making time for family.

To renew their popularity in business and social circles, they are most

likely to try new themes or unique venues for entertaining their friends

and business associates. They value personal contacts and people

more than they value organisations.


The Self-made are highly receptive to product innovation and are,

hence, a delight for marketers of luxury products and services.

“I change mobiles every six months. I like to upgrade them always,” one

of the respondents said.

The Self-made typically tend to use brands as a means to fulfill their

aspirations, and show the strongest propensity for owning customised

products. They are, therefore, plum targets for products based on

cutting-edge technology or products tailored to their needs.

Being active networkers, and inquisitive by nature, the Self-made gain

access to information on the latest brands, styles and trends in the elite

parties they attend. With a number of major luxury brands making their

entry in the Indian market, the Self-made do most of their shopping

from luxury retail stores within the country as their tight schedule of

business engagements does not always give them the time to shop

abroad. They are likely to be the biggest spenders on designer clothing,

personal accessories like handbags, wallets and leather products, and

designer mobile phones. They are also amongst the biggest spenders

on luxury watches. Spending on family is confined to holidays abroad,

jewellery products and household electronic products. Frequency of

travel abroad is relatively much lesser than the other categories of the

ultra HNIs, probably because they spend more time on business.

The survey finds that the Self-made are more comfortable with people

than with organisations. This is perhaps why many of them believe in

They are

typically the earliest adopters of new devices or gadgets in their circle,

which sets them apart as trendsetters in their social circles.

Compared to the other categories of ultra HNIs, the Self-made deploy

the lowest proportion of their income on investments for growing their

wealth. They are also likely to be the most involved, among the ultra

rich, in planning their investments.

developing personal equations with specific chartered accountants,

wealth managers, private financial advisors, friends and family and

seek their advice on critical matters.

They also tend to 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

stake in businesses. They balance such investments with relatively less

risky instruments such as fixed deposits and insurance policies. As a

rule, they invest only in instruments that they best understand. Their

tendency to take measured risks is also apparent in their choice of real

estate assets – they are more 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.

These are people who happened to be in the right industry at the right

time. Their numbers have grown significantly in the last couple of

decades, having worked their way to wealth, in service industries such

as information technology and financial services, benefitting from

handsome salaries, hefty bonuses, end-term benefits and stock

options. Others are self-employed. Doctors, lawyers and accountants

are the other kinds of professionals for whom expertise

is their originator of wealth.

Compared with the other two types,

They

are more likely to view hard work as a means to extend their capabilities

further, and view wealth as an outcome of those enhanced capabilities.

It is this focus on growing their expertise that allows them to choose

between working, consulting, advising or mentoring. Professionals are,

therefore, able to diversify the routes to creating and maintaining

wealth.

The Professionals

Professionals are less possessed by

the idea of continuing to work hard to grow their wealth over time.


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 relatively lesser portion of their total income is

marked for business investments. Professionals, therefore, spend and

invest a greater proportion of their income than other ultra HNIs.

Spend they do, but wisely. “To me, in any purchase, usability is of utmost

importance. If I want to splurge on a beamer (BMW luxury car), I will ask

myself do you really need one. If I am convinced then I will buy,” a

Professional stated.

For them, their preferred brand has to be unique and has to have its

own USP (unique selling proposition). For instance, when questioned

on the kind of cars they aspire for, most Professionals interviewed for

the survey confessed a weakness for sports utility vehicles (SUVs),

crossover SUVs, ultra luxury cars, and sports cars, convertibles,

roadsters – all of which are big-ticket vehicles.

They invest primarily for growing rather than protecting their wealth.

As their absolute income level and also income as a proportion of net

worth is far lesser in comparison to the other ultra HNI categories, they

have a greater need to grow wealth. In their investing, Professionals

are concerned about social security and regular income, according

to our survey. “Once you are 50, all your money should be easy to

(be made) liquid,” one of them quipped.

The Professionals, as our survey indicates, spend time on self-

enrichment by pursuing their hobbies and following their passions

closely, like travelling. Professionals tend to travel extensively to pursue

personal interests. Befitting this passion, high-end cameras find a

unique position in Professionals’ spending preferences.

“I love wild life photography and invest in upgrading the lenses, I spend

quite a bit of money on this. I choose my travel accordingly,” one

respondent said.

Professionals route three-fourths of their investments into financial

assets, primarily equity and debt.

Although Professionals may not have as much organised scale to

manage investments as the traditionally wealthy Inheritors, they are

the most inclined to pay for investment advice compared with other

ultra HNIs.

“Investing is a passion for me , it is fun to get information from different

wealth managers,” a Professional disclosed.

In view of their background,

“It is a way of life for me,” one of them said. “It (charity) should go

hand in hand with life,” opined another. They prefer to channel their

giving through charitable institutions rather than contribute at an

individual level.

Most Professionals believe that a solid foundation of values, education

and effort will stand their children in better stead than exposing them

to the luxuries of life. The same logic applies to leaving behind a legacy

for children. Professionals would rather have their children make their

mark in life through merit.

“Most of my wealth I want to give to charity. I want my son to create

wealth the way I have,” one of the Professionals concluded.

Our survey reveals that they clearly

try to inject more safety in their investments and diversify risk by

investing across a variety of asset classes.

Our survey found Professionals to be the biggest users of professional

help, consulting wealth managers and financial planners for their

investing decisions.

Professionals are most concerned about

social inequality than other ultra HNIs, and take time to give back to

society.


Spends:

Attitudes,

Motivation and

the Ultra Wealthy

Lifestyle

In February 1992, while presenting his second budget as finance

minister, Dr. Manmohan Singh had said, “To realise our development

potential, we have to unshackle the human spirit of creativity, idealism,

adventure and enterprise that our people possess in abundant

measure.”

Critically, what has changed radically due to this accumulation of

wealth by more and more Indians has been their attitude towards

spending. Until the 1990s, leaving aside some regional cultural

differences, the average Indian was far more circumspect in spending,

particularly on items or services that are generally perceived to be

crassly consumerist.

That is no longer the case. The average individual is today bombarded

through all forms of media by focused sellers intent on peddling a

variety of goods. Moreover, due to the explosion of information fuelled

by the Internet, and increased global travel, there is greater awareness

of global brands. And there is willingness to spend because things are

within reach and the pockets are loaded.

Anecdotal or apocryphal, there is this story about America’s first

billionaire John D Rockefeller. One day, Rockefeller made a call from a

pay phone – and lost his quarter. When the machine did not refund the

money, he called the operator who expressed regret over the incident

and asked for his name and address so that the amount could be

returned to him. "My name is John D...," Rockefeller began. "Oh, forget it.

You wouldn't believe me anyway!"

Today, nearly two decades later, it would be fair to say that the

economic reforms of the early 1990s did indeed unleash a wave of

industrialisation and growth. This fuelled increased levels of income

and wealth among many sections of Indian society.

Ultra HNIs and spending

SPENDS

So, is it that the ultra HNIs, despite their millions and billions, are

burdened with the same worries and concerns that trouble most

ordinary folk? Or is Rockefeller just an exception to the breed? Our

survey on spending threw up a few surprises to this, and other

questions related to the spending behaviour of the wealthy.

First, as a proportion of total income, it is the Professional – and not,

as popular wisdom would suggest, the Inheritor or the Self-made –

who, well, splurges the most, if one can call it that. This can probably

be explained by the fact that Professionals derive their income

predominantly from a job, unlike the Inheritors and the Self-made,

both of who generate their income principally from their businesses.

Not surprisingly, the latter two plough back nearly a third of their

income into their primary businesses. All the three – the Inheritors, the

Self-made, and the Professionals – save (cash savings) nearly a fifth

of their total income, and invest another one-fifth to multiply their

personal wealth.

In a pattern that can be explained on the basis of widely acknowledged

regional cultural traits, ultra HNIs in the North tend to be a bit more

expansive with their money compared with their counterparts from

the South.

The comparison across age groups coughed up what, at first glance,

appeared to be a bizarre statistic:

But it is not so remarkable if one considers that most of the younger lot

are passionate about their businesses, and are highly motivated by the

desire to grow their businesses aggressively, enhance their wealth and

gain recognition. Consequently, a greater percentage of both their

income and time is invested in their businesses.

The relatively younger ones appear

to be far more conservative in their expenses. This is antithetical to the

perception that the old are generally thrifty compared with the young.



The Professional – not the Inheritor or the Self-made – spends the most, as a proportion of total income

Expenses

Investment inprimary business

Savings



Others

30.2%

21.5%

19.0%

18.9%

6.2%

32.6%

20.0%

20.1%

21.6%

10.4%

2.5%

28.8%

15.9%

20.8%

Self-made ProfessionalsInheritors

18.6%

4.2%

4.3%

4.4%


Not so the older generation of ultra HNIs. Their passion for

reinvestment into their businesses wanes as they grow older. This,

perhaps, is because after they become well-known and their

businesses become established, and are increasingly turned over to

professionals or the next generation of family, they are left with both

time and money to indulge themselves on cravings they probably

sacrificed in their younger days.

Our survey numbers bear this out.

By contrast, the semi-retired ultra HNI is far more laidback: he reinvests

only 18 per cent of his income in his primary businesses, and spends

nearly 28 per cent of his income on vagaries such as luxury travel

packages, a luxury watch, or even high tech gadgetry.

It would be inappropriate to conclude from all this that the Professional

is a squanderer. According to the results of our attitudes survey, unlike

the Inheritors and the Self-made, Professionals are not as

overwhelmingly consumed by the desire to build up wealth that their

children can inherit; based on their own experiences, they place far

greater premium on success through good education and hard work,

and are quite willing to let their progeny come good on their own.

Equally, we found, the Professionals are acutely conscious of the

environment they come from and are far more inclined towards charity

than the others. Quite distinct from their regular or occasional spend,

the Professionals bequeath nearly 10 per cent of their income towards

noble causes, markedly higher than 6 per cent for Inheritors and

around 4 per cent for the Self-made.

On the flip side, as noted earlier, while putting away a reasonable

percentage of his income as savings, Professionals also show greater

Ultra HNIs who are active or very

active in their businesses spend nearly a fifth of their income on regular

or occasional expenses, and reinvest nearly 30 per cent of their

earnings in their primary business.

propensity to spend on luxurious items. But even here, caution rules:

the motto is “value for money”.

By contrast, for Inheritors, luxury has always been a way of life, and

brand is often associated with societal status, and hierarchy and even

familiarity – as one of them said, “I plan purchase of only high-value

(read brand) items. It should reflect my status” – and price quite often

plays secondary fiddle in their purchase decisions.

Overall, the survey revealed,

Following closely are items such as domestic

and international branded wear, high-end cameras, and luxury leather

products.

ultra HNIs as a class spend a significant

portion of their overall expenditure on customised holiday packages,

luxury watches, jewellery, diamonds and precious stones, and

household electronics.

Note: The data values have been indexed to Exclusive holiday packs.Source: T.O.P. India - Kotak Wealth & CRISIL Research

Ultra HNIs prefer to spend more on products meant for the familyA significant portion of overall expenditure goes into customised holiday packages, luxury watches, jewellery, and household electronics.

Luxury writing

instruments56

Home decor /Crystals

57

Jewellery /Precious stones

90

Apparel /Accessories

73

Householdelectronics

90

Exclusive holiday packs

100

Luxury watches

98

Art /Artefacts

36

Vintage spirits

52


Home decor / Crystals

Jewellery / Precious stones


Luxury watchesExclusive

holiday packs

82%

17%1%

57%

37%6%

56%

43%1%

54%

44%2%

41%

58%

38%

59%3%

Vintage spirits / Liquor

Apparel / Accessories

Luxury writing instruments Art / Artefacts

67%

28%5%

42%

58%

39%

61%1%

BothPlanned Impulse


Big-ticket spends are planned in advance, often with family involvementIn most purchases, such as holiday packages, luxury watches, jewellery, household electronics, and home décor, the family plays a paramount role, considering the huge spends involved.

Planned versus impulse purchase

an overwhelming 88 per cent of the Inheritors said the

choice of destination and the length of the holiday was determined in

consultation with others in the family, and the numbers were similarly

high for Professionals and Self-made at 85 per cent and 79 per cent,

respectively.

Our survey grappled with one key question: what is the nature of ultra

HNI spending? The answer: Largely planned. In most purchases, such as

holiday packages, luxury watches, diamonds and jewellery, household

electronics (which include premium mobiles and high-end cameras),

and home décor, the family plays a paramount role, considering the

huge spends involved.

For instance,

In fact, the influence of the spouse or the children on such purchases is

so profound that many of the respondents could not recall what their

last such high ticket purchase was, because it was not a purchase driven

by their own particular whim or fancy, but was more the result of family

deliberations.

For the most part, price is not really a primary consideration for the

Inheritor and the Self-made, whereas value for money is a major factor

for the Professional, the older and semi-retired.

Planned buying is usually led by need; therefore, there is a tendency to

also deliberate on factors such as quality and durability of the product,

particularly in Indian climates, exclusivity, brand and newness of the

model.

Although the preference is for well-known brands, the ultra HNI is not

averse to bargain purchases.

Apart from these categories, most buying is impulse-led. “Most

purchases are spontaneous, something catches the eye and I pick it up.

I can’t recall the purchase time and price,” one respondent observed.

There are certain distinct factors that guide a planned purchase.

Because they tend to be big-ticket items and involve consensus

decision making in the family, appeal and price are important factors in

such purchases.


Impulse purchases are spur-of-the-moment buying, guided by a mix of

appeal and whim.

New York Herald founder James Bennett once discovered – and began

to frequent – a restaurant in Monte Carlo that he said boasted a perfect

mutton chop. One evening, Bennett arrived to find someone seated at

his favourite table.

His solution? He immediately purchased the restaurant (for $40,000),

asked the diners at his table to leave (even though they were only

halfway through their meal), finished his meal (mutton chops), and

returned the restaurant to its previous owner.

Despite ease of use and convenience, whether goods can be purchased

online or not is not a major determinant while shopping.

The online route is overwhelmingly used by all – nearly 90 per cent of

Inheritors, Self-made and Professionals replied in the affirmative – in

purchasing of air tickets, and holiday bookings. To a lesser extent, it is

also used for purchase of hi-tech gadgetry, apparel and

accessories.

One major dissuading factor for online purchases is the fear of credit

card fraud. So, even in the case of booking of travel tickets and holiday

packages, a majority of the respondents said that to feel safer during

online purchases they tend to use their corporate credit cards rather

than their personal cards.

Impulse purchases are usually done at the airport (duty-free shops) or

while travelling and purchases are made largely on how eye-catching

the product is. Other factors guiding impulse buying are the brand, the

newness of the product, and exclusivity. Critically, need for the product

is not a factor; but having cash in hand is.

The Inheritors are the most comfortable doing online shopping,

among the three categories. Additionally, across categories, it appears

to be more popular among the younger lot.

All work and no play makes Jack a dull boy. True to adage, the ultra HNIs,

many of whom have slogged it out, or continue to toil hard, in the

workplace to reach the heights that they have, ranked vacationing as

their topmost priority.

Unlike the Inheritors or the Self-made, who own businesses and

perhaps employ others in large numbers to run them, workplace

burnout is an indisputable factor of the Professionals. Perhaps

reflecting this dichotomy, nearly 67 per cent of the Professionals

confessed that their biggest weakness was exclusive luxury holiday

packages, as compared to 65 per cent and 54 per cent respectively, for

both the Inheritors and the Self-made.

Travel

A majority of the ultra HNIs travel at least twice a year, while about 15-

20 per cent of the Inheritors and the Self-made travel thrice or more

Professionals have a penchant for travel

Overall

Inheritors

Self-made

Professionals

100

143

94

91

Note: Data values for the three ultra HNI profiles are indexed to Overall. Source: T.O.P. India - Kotak Wealth & CRISIL Research


Note: Data values for the cities are indexed to All India.Source: T.O.P. India - Kotak Wealth & CRISIL Research

Ultra HNIs in Mumbai spend far lesser on travel

116Other cities

Delhi99

Bengaluru99

All India100

Mumbai91

annually. For the Inheritors and the Self-made, the most common

reasons for travel abroad are family functions, business purposes, or

leisure, not necessarily in that order. For the Professionals, it is mostly

either conferences, business trips or vacations (including leisure, sports

or entertainment events).

The average stay of travel overseas, particularly if it is for sightseeing, is

1-2 weeks. Weekends or short 3-4 day breaks are increasingly being

used for quick getaways within the country, even within familiar

surroundings, if only to take a break from the monotony of routine

work.

“Sometimes, we just move to the Taj over the weekend and chill out. My

kids carry their cycle and toys. It is good fun. Completely disconnected

from work, but you are still in familiar surroundings,” a Mumbai-based

ultra HNI remarked.

A majority of ultra HNIs travel abroad at least twice a year


36%

10%8%

13%

33%

54%


11.1%

11.1%

Once a year Twice a year Thrice a year More than

thrice a yearNo fixed

frequency

1-2 days

3 days - 1 week

1 - 2 weeks

More than 2 weeks

Not fixed

33.4%41.6%59.2%54.5% 76.9%

24.2% 15.4% 22.2%

22.2%

41.7%30.0%

6.1%2.5%

15.2% 8.3% 7.7% 16.7%


Average duration of stay is 1-2 weeks, regardless of the frequency of overseas travel


Interestingly, economy class appears to be the most preferred mode of

travel overseas for both the Inheritors and the Self-made; while nearly

70 per cent of the Inheritors and 64 per cent of the Self-made said they

travel economy class, nearly 70 per cent of the Professionals said they

travel business class.

That may appear a trifle peculiar, but is nonetheless easy to understand

if one considers that the Professionals travel mostly for conferences or

business purposes, which is generally paid for by the company.

Moreover, the economy class is favoured for short flights overseas,

whereas the business class is the preferred choice for long flights. For

short holidays within the country, most ultra HNIs choose to drive to

their destinations.

Besides, in the case of the Inheritors, accustomed as they are to setting

the standards, there really is no one that they need to emulate or look

up to. Even after he became America's first billionaire, John Rockefeller

chose to operate from a very spartan office. When a curious visitor once

asked him how he expected to impress anyone with an office such as

his, Rockefeller retorted: "Who do I have to impress?"

The motives for vacationing are diverse. Many of them, particularly

those who are still active in their businesses, want to get away,

anywhere, to relieve themselves of the tedium associated with work

and come back rejuvenated, while others, particularly the younger

ones, indulge individual tastes such as scuba diving, photography,

landscape and the environment and choose the locale accordingly.

“I chose a wine chateau in France for my holiday. Staying and driving

along the countryside was a wonderful experience,” one of the

respondents recalled.

For some others, it is the sheer pleasure of gambling. “Every time I travel,

if there is a casino, I gamble. I have made my share of profits there. Why

not?”

“If I am visiting my daughter, my holidays last for a month; otherwise, in

other destinations, it is usually a couple of weeks,” according to another

ultra HNI.

The potential market size of the luxury vacationing industry (includes

hotels, fine dining and travel) was estimated to be ` 234 billion as of

2010-11. An average ultra HNI takes at least two holidays per year – one

short and one long. During these holidays, he spends money on

business or first class air travel and best-in-class luxury hotels.

Associated as they are with wealth, premium lifestyle, and brands, it

should come as no surprise that luxury watches are a coveted item for

ultra HNIs.

For those born into wealth, a luxury watch is a thing to be flaunted; a

status symbol, the hallmark of a complete man. It is marginally less so in

the case of a professional, and the numbers reflect that.

Nearly 74 per cent of the Inheritors and 55 per cent of the Self-made

professed their inclination to buy a luxury watch, whilst only one-third

of the Professionals did so. Predictably, the preference appears to

decline with age, with only 33 per cent of those above 55 years

spending on it compared with 74 per cent of those under 40.

Ostensibly, even among the supra-rich, the motivation to display and

impress diminishes as one grows older. A majority of those surveyed,

said they owned 2-5 or more luxury watches. Rolex, Omega, Rado,

Cartier, Piaget, Breguet, Jaeger Le Coulture, and Girard Perregaux are

sought-after brands .

India’s potential luxury watch market was an estimated ` 15 billion in

2010-11. A majority of luxury watch purchases in the country take place

Luxury watches

Even in this high-tech age, luxury watches still easily outrank

expensive electronic gadgetry such as luxury mobile phones in terms

of aspiration.


Luxury watches are a coveted item for Inheritors


96

109

73

100

Inheritors

Overall

Self-made

Professionals

in Mumbai or Delhi, although the aspiration for them is quite high in

other Tier I and Tier II cities.

Indians, regardless of age, class, or wealth, have always been enthralled

by jewellery. Because of its dual utility as an investment, the fascination

with it has not shrunk remarkably even during times of economic

turmoil.

Weddings and special occasion purchases and the ability of high value

diamonds and jewellery to act as a store of value make this market a lot

more resistant to ups and downs.

The ultra HNIs are no exception to this.

Wearing jewellery is the most common form of display of wealth and

social status.

Jewellery and precious stones

It is, therefore, not surprising that the Inheritors and the

Self-made spend more on jewellery than the Professionals. The more

prosperous you are, the more the jewellery on your person.

Jewellery – a traditional fascination for Inheritors


110Inheritors

93 Self-made

100Overall

80Professionals


Ultra HNIs in Delhi are relatively the biggest spenders on jewellery

Other cities109

100All India

91Bengaluru

111Delhi

Mumbai93


The potential market size of luxury jewellery was estimated at ` 229

billion in 2010-11. According to industry estimates, luxury jewellery is

almost 15 per cent of the total diamond jewellery market.

The really top end of the luxury jewellery market, dominated by leading

family jewellers and independent jewellery designers, would be large

high-quality solitaires (over 3 carat) and high-end, diamond-studded

jewellery (over ̀ 1 million per piece).

Major global brands such as Cartier, Chopard, and Tiffany have been in

the country for a while now. However, given their limited range, lack of

custom-made designs and reluctance of Indians to pay a premium for

designer jewellery, their impact on the market has so far been muted.

Today, however, there is an increased awareness and focus in the Indian

jewellery industry on design; apart from designers, theme-based

collection designers too are drawing clientele. Top family jewellers, in

particular, focus on this segment a lot more. The jewellery industry in

the country has traditionally operated on the basis of trust, and those

having historical relationships with wealthy families do have a

significant advantage.

Driven by the complementarity of the luxury jewellery market with the

apparel market, fashion designers have increasingly turned their

attention to the former segment. The demand for luxury jewellery in

the country is virtually insatiable, and unlike other luxury products, this

market is more evenly distributed, with demand high in cities such as

Kolkata and Chennai.

Although owning a car is now a necessity, a luxury car such as a

Mercedes or BMW is still used to send out an “I have arrived” lifestyle

statement. Luxury cars are those with an on-road price of ` 2.3 million

or above.

Luxury cars

In February last year, in Aurangabad, while working out at a gym, a city-

based property developer shared with a couple of friends his

childhood dream of owning a Mercedes. He suggested that all his

friends should also join in.

"We laughed it off as we were not sure of even 11 people joining the

bandwagon. But he continued to pursue the idea wherever and

whenever he got an opportunity," reminiscences one of the buyers.

The initiative burgeoned into a deal with Mercedes that was negotiated

at the company’s headquarters in Germany. The result: Last October,

150 Mercedes were sold on one single day to a group of buyers in the

city comprising doctors, builders, industrialists and professionals.

The aim, in this instance, was to showcase the city’s wealthy while

simultaneously availing of discounts pursuant to the mass booking.

Most ultra HNIs own a number of cars to suit their diverse needs.

Some of the popular brands, our survey revealed, were Honda,

Toyota, Mercedes, BMW, Audi, Skoda, and Hyundai. On an average,

the Inheritors own 3-4 cars, while the Self-made and the Professionals

own 1-2 cars each.

In terms of “aspirational” cars, an overwhelming favourite is the SUV

(sports utility vehicle) or the crossover SUV, perhaps in part because of

the rugged, macho image associated with it, coupled with the fact that

it is ideal for short family holidays in nearby locales. Another sought-

after model is a sports car or a roadster. Interestingly, the Professionals

showed the greatest desire to own an ultra-luxury car, while the

younger Self-made ultra HNIs prefer an SUV.

For regular use in cities, Japanese cars are preferred because they are

trusted for Indian roads. Among the younger Self-made, luxury cars are

a definite style message.


11%

5%MITSUBISHI

MAHINDRA12%MERCEDES 17%

11%

31% 24%

9% 6%


Japanese brands – the most trusted cars for Indian roads

Other brands

Note: Ultra HNIs have multiple car ownership. Hence, the percentage values do not add up to 100.

64%HONDA 52%TOYOTA 36%SUZUKI(MARUTI)

6% TATACHEVROLET FORD VOLKSWAGEN

BMWHYUNDAI SKODA

The potential size of the luxury car market was estimated at ` 140-150

billion as of 2010-11. Luxury car sales have grown at a CAGR of 22 per

cent over the last three years (2008-09 to 2010-11). This growth is

mainly attributed to the entry of new luxury car players in India,

increasing spending propensity of the customers, easy availability of

finance and improving economic scenario. India being a growth

market, players have focused on increasing sales in the country and

thereby have enhanced their dealership network considerably. For

instance, Audi has enhanced its dealer network to more than 15 dealers

with BMW having more than 20 dealers across the country as of

2010-11. This has aided the growth of the luxury car market

considerably.

The growth in the luxury car market has also been driven by a number

of new model launches, and an increase in the spending propensity of

customers has led to high demand for luxury vehicles. Also, attractive



Ultra HNIs in Bengaluru relatively the lowest spenders on household electronics

All India

100

Mumbai

Bengaluru

Other cities

Delhi

100

109

9896

equated monthly installments (EMI) schemes by financiers that help

reduce the EMI for customers has led to easy availability of finance,

thereby leading to high growth in the luxury car sales.

In today’s high-tech era, marked by rapid changes in technology and

constantly evolving products, it is obvious that many high-priced items

that enhance and complement personal lifestyles will hold sparkle for

those who can afford them.

Although it would be fair to say that all ultra HNIs spend a great deal of

money on high-end electronics, the Professionals stand out in this

respect; their spend on household electronics is next only to

holidaying. This is ostensibly because of their familiarity and ease with

technology; due to their education and work profile, many of them

have encountered or own similar products and are seeking to upgrade

them to match their lifestyles.

“As you age you don’t want to spend on frivolous things. You are more

into buying things which will last for long, you want to spend more on

having good experiences like holidays,” one older ultra HNI

underscored.

In India, household luxury electronics is a vast segment that includes

high-end home entertainment systems – 55” or larger television and

sound systems from brands such as Bang & Olufsen; custom-built

entertainment rooms or theatres costing upwards of ` 1 million and

high-end mobile phones from luxury brands such as Vertu. An

emerging trend in this sector is that of home automation, wherein


Born into the information age, the younger generation is particularly

comfortable and hands-on with technology, and that is reflected in

their higher spend on such items. The older ultra HNI is more likely to

purchase them as gifts to family or friends, rather than for personal use.

appliances and gadgets at home can be operated through remote

control.

The potential luxury electronics market in India was estimated at ` 51

billion in 2010-11. Although the market in India for luxury mobile

Household electronics resonate more with Professionals


llarevO

srotirehnI

slanoisseforP

edam-fleS

133109

100

86



Ultra HNIs in Mumbai are bigger spenders on apparel and accessories

Mumbai119

All India100

Bengaluru100

Other cities92

Delhi84

phones is still niche, albeit a growing one, there is huge demand for

home entertainment units, whose demand is closely correlated to the

demand for luxury homes. It has been observed that people who

purchase large homes or bungalows typically convert one of the rooms

into an entertainment centre with the assistance of interior designers

who also help source the various components such as the television,

audio systems, blu-ray players and gaming consoles, as well as design

the aesthetics of the rooms.

This market extends beyond the metros to emerging Tier I cities such as

Bengaluru, Chennai, Hyderabad, and Ahmedabad. Although

purchasing behaviour varies from place to place, buyers in the larger

cities or metros are more brand-aware and engage in a lot of due

diligence before buying these products. In smaller cities, purchases are

driven more by the ‘I want one too’ attitude.

There is a high import duty on such goods, due to which grey market

purchases in the segment are appreciable.

Dressing nattily is a common human trait, and the degree of spending

on them differs only on the basis of individual preferences. Inheritors,

having grown up in an atmosphere of luxury, are more knowledgeable

about international designer brands and tastes are sometimes

developed at a far earlier age.

Price is never the dominant consideration for Inheritors while buying a

dress; brand is. Most of our respondents from the Inheritor category

indicated that they were drawn towards, and more aware of,

international designer brands and utilise their overseas visits to

purchase their favourite brands. “I have not shopped in India for the last

10 years,” one of them remarked.

Apparel and accessories

“The same international brands in India don’t have the same range,

so I pick them up when I travel overseas. Also, apparel, especially

international, better to buy them abroad. The range, the cut, the finish,

is better there, even the price.”

The Self-made mirror the mindset of the Inheritors to some extent,

although the younger ones among them, for reasons such as greater

networking, are bigger spenders on clothing and accessories

compared with the older lot.

The three big segments of the fashion luxury apparel market are the

international branded apparel, Indian designer wear, and accessories.

The market is segmented on the basis of wear occasions.

International brands cater to casual wear, formal western wear, and

accessories, while Indian designers cater to the traditional, ethnic wear

market. International brands, with the exception of Canali, have by and

large stayed away from the Indian wear market.

The Professionals spend a relatively lower portion of their income on

dressing, and they show no particular proclivity towards either

domestic or international brands.



Professionals show the lowest inclination to spend on branded apparel and accessories

107Inheritors

100Overall

77Professionals

100Self-made

Indian designers have experimented with western formal and casual

wear, but their success rate is hardly anything to write home about.

There are no major success stories among global brands in India as yet

either, although the general perception is that the chances of being

successful are closely related to the awareness of the brand.

In contrast to mature markets, the apparel market in India for men is

much larger, constituting around 50 per cent, and has seen the entry of

several brands including Louis Vuitton, Burberry, Gas, Versace, and

Armani. Some of them forayed into the country in collaboration with

more active Indian partners such as Murjani Group, Sachdeva Group,

Raymonds and DLF, and the results of these brands have been mixed –

while some have been fairly successful, some have exited as well.

There are some multi-brand players as well – The Collective by Madura

Garments, for instance. Most of these brands have ventured out of five-

star hotels, which was their first footprint, into luxury malls and the high

street. Market growth has been aided by the presence and expansion of

these brands.

The industry sees the success of certain brands as an indication of the

maturing of the consumer, and the latent demand for luxury apparel,

which is being buoyed by fashion shows, new luxury store launches

and end-of-season sales, and price competitiveness (compared with

international prices).

The potential market for apparel and accessories in India was estimated

at ` 64 billion as of 2010-11, and its mainstay is Indian traditional wear,

sarees and designer wear, particularly for weddings and personal

collections. Most designers today have their own exclusive boutiques,

either in five-star hotels or even in luxury malls.

Accessories are a very attractive segment of this market, and its

potential is huge. Because of the standard nature of these products –

such as handbags, belts, sunglasses and cuff-links, which are fast

moving items – certain global brands have done well in the domestic

market.

As people grow richer, they are finding newer ways to splash their

money around.

And where do Indians like to spend the most? The Big Fat Indian

Wedding, where else! The wedding planner has arrived in India, and in a

big way. And destination and theme weddings are the in-thing on the

circuit. So, marriage in Canada, reception in Morocco, and honeymoon

in Thailand is not a novelty anymore.

New trends in spending



Ultra HNIs in Mumbai relatively the highest spenders on home décor

Mumbai118

Other cities107 100

All India83

Bengaluru91

Delhi

Destination weddings, in fact, are a hot favourite with the super rich,

and event management companies are combining with the super rich

to make it an affair to remember, never mind the expense.

Another attended a wedding on a ship in Australia.

Theme weddings too are an interesting variant. The Trang underwater

wedding ceremony in February in Thailand is one such, or the sky-

jumping wedding. Or even a beach wedding in Hawaii, or wedding

celebrations spread over different days in different venues.

The wedding ceremony of a model and actress with a hotel magnate

was spread over 10 days in three different cities in India. The multi-

million dollar celebration involved 600 guests from 26 countries being

ferried around on chartered jets.

Chartering aircraft is not confined to weddings alone. In a cricket crazy

nation, friends sometimes charter flights in groups to attend cricket

matches, such as the World Cup semifinal between India and Pakistan

in Mohali.

“My friend had a wedding abroad, and for guests who couldn’t travel

with them (the wedding party), arranged for live video streaming,” one

of them said.

Even losing has its virtues, apparently. One ultra HNI talked about how

you can be an angel investor, invest in a number of companies, and

then boast at parties about how much was lost in the ventures!

Further, partying has also become more frequent. People are not

averse to having weekday parties, with larger groups and “on the

house” parties. “Earlier, people used to spend on expensive liquor for

small gatherings or for close friends, but now even if there are 3,000

people attending, vintage wines and expensive spirits are being

served,” one of them commented.

Owning aircraft and yachts has also become popular, although

teething infrastructural problems such as ports for berthing, and

bureaucratic hassles are discouraging factors. One of India’s billionaires

owns four yachts. Another is believed to have purchased some islands

in Lakshwadeep, and a luxury mansion on a secluded island off the

coast of Cannes.

Some of our respondents said they had even spent a considerable

sum of money on storing their stem cells.

In short, the dictum is: Have money, will spend.


Ultra HNIs in Delhi and Bengaluru spend relatively lesson luxury writing instruments

Other cities120

Mumbai114

All India100

Delhi85

Bengaluru85


Investing:

Risk,

Return and

Wealth Preservation

Driven by a slew of factors, the number of ultra HNIs in India has

leapfrogged in the last decade or so. And so has their wealth.

The average rise in the income of ultra HNIs has been much stronger

than that of an average Indian, having grown in the high double

digits over the past 5 years due to ESOPs and other innovative salary

structures, strong corporate performances, buoyant capital markets,

and the considerable return on investments.

There is another aspect that sets the ultra HNIs apart from the average

individual. Even though they may be supremely wealthy by normal

standards, ultra HNIs carry their unquenchable (corporate) thirst for

growing their business into their personal wealth too.

So, a businessman willing to bet millions of dollars on purchasing a

failing business is unwilling to show the same gumption when

it comes to investing his own wealth in riskier asset classes. This is

probably because the primary motive, our survey found, behind

investment (including, perhaps, tax planning aspects) is legacy for the

family, social security and regular income; growth comes later, quite

unlike in business, where growth, and not protection, is the

chief objective.

With the safety of their personal wealth paramount in the minds, it is

but natural that many of the ultra HNIs reiterate their desire to maintain

close control over their assets.

“I would rather invest in my own technology-related business or real

estate; why should I put money in something where I have no control,”

one of our respondents commented, when queried about this

perceived risk aversion.

But our survey on

investment patterns revealed a very interesting dichotomy: as a class,

the ultra HNIs uniformly exercise a far greater degree of caution when

it comes to their investments compared with the kind of risks they

are willing to undertake in their businesses. The difference among

them is only in terms of degree, when it comes to risk aversion.

INVESTMENT

It is interesting to note from our survey that the key source of personal

wealth is success in primary business; 72 per cent of the respondents

cited it as a key influence on wealth accumulation. This is followed by

investment in real estate (63 per cent of the respondents). And there is a

tie for the third spot with 43 per cent of the respondents each stating

that inheritance and investment in equity were the next key influencers

for wealth creation.

Around 78 per cent of the Inheritors and 91 per cent of the Self-made

cited success in primary business as the major factor. Moreover, for

73.5 per cent of the Inheritors, 58 per cent of the Self-made, and

44 per cent of the Professionals, investment in land and properties

has been the key source of wealth.

Earlier, inherited and landed assets dominated the wealth landscape;

today, it is enterprise and business ownership that have emerged as

the dominant source of riches. In India, though, enterprise culture is

a more recent phenomenon.

Some of the new ultra HNIs are those who have sold businesses and

never felt the need to work again. It is not only in the perceived boom

areas, such as information technology and telecom, that big money

is being made; pharmaceuticals, shipping, manufacturing which are

some of the most traditional industries in the world, have also made

people wealthy.

Not surprisingly, in view of the stated primacy they attribute to

protection of wealth, all the three ultra HNI profiles – the Inheritors, the

Self-made, and the Professionals – save nearly a fifth of their total

income, and invest close to another one-fifth to multiply their personal

wealth.

The choice of asset classes, of course, varies, in accordance with the

requirement. “It depends on what stage you are in your life cycle. For

example, if your kids are small, you invest mainly because you have

to provide for their education, luxury lifestyle and marriage. Once you


Inheritance / Rich benefactor

Success in primary business

Investing in land and property

Investing in equity

By diversifying into different / allied business

Income through job / salary

Consistent saving in low-risk investments

Income from sale of business

Enterprise, business ownership and a successful career have emerged as the dominant sources of wealth

Agricultural / Tea plantation income

Lottery / Gambling

Others

ESOPs in the company

100

88

83

55

35

32

27

23

17

5

3

3


103

65

33

40

8

15

33

8

3

3

29

50

59

13

97

17

13

4

67

Inheritors Self-made Professionals

Note: Indexed to Inheritance income for the Inheritors


19.3%

20%

6.3%

3.9%

22.4%

28.4%

19.7%


Savings

Expenses

Investment in primary business


Others


Ultra HNIs invest one-fifth of their income for growing their wealthBut they put a greater proportion back into their business to fuel the engine of wealth creation. This stems from a desire for a sense of control. Most ultra HNIs would rather invest in their own business rather than in instruments where they have no control.

are comfortable having saved enough, then your goals are totally

different,” one of those surveyed elaborated.

This is not to suggest that ultra HNIs are conservative when it comes to

investing. Far from it. Vis-à-vis others, the ultra HNI is generally willing to

take more risks in the hope of better returns. The difference, as noted

contextually earlier, is only in terms of degree.

In recent times, possibly due to increased exposure to a greater variety

of investment products, many ultra HNIs have displayed the propensity

to be more sophisticated in terms of the breadth of their investments.

More ultra HNIs are also now investing in vehicles that are generally

considered to be at the riskier end of the financial spectrum, such as

hedge funds, private equity, structured products and derivatives.

Of the three, the Inheritors tend to protect their wealth by diversifying

their holdings. Inheritors interviewed for the survey indicated that

they distribute their investments across asset classes, with a

greater emphasis on real estate – about 40 per cent – and equity –

about 30 per cent. Probably because they are very comfortable relying

on professionals to run and grow their business, the Inheritors readily

take professional advice on their investments. They have teams of

wealth managers, chartered accountants, financial planners and

lawyers to manage their investment portfolios.

The Self-made, on the other hand, deploy the lowest proportion of

their income on investments to grow their wealth. According to our

market research, while both the Inheritors and the Self-made deploy

around 19 per cent of their income on investments, the Professionals

deploy around 22 per cent. In terms of being involved in planning their

investments, the Self-made are also likely to be the most involved,

among the three types, in planning their investments, followed by

the Professionals and the Inheritors. As they are more comfortable

with people rather than organisations, the Self-made develop personal

equations with specific chartered accountants, wealth managers, and

private financial advisors and take their advice.


Compared with the others, the Self-made also tend to take calculated

risks with their investments. For instance, they are likely to have the

highest proportion of investments on alternate assets such as private

equity stake in businesses. However, they balance such investments

with relatively less risky instruments such as fixed deposits and

insurance policies.

The Self-made largely invest only in instruments that they best

understand. “God has stopped making land, so property is where

one should invest,” one Self-made ultra HNI said.

Their tendency to take measured risks is also apparent in their choice of

real estate assets – a mix of real estate assets such as holiday

homes, commercial buildings and agricultural land and plantations,

apart from apartments and villas.

For the Professionals, our survey reveals, social security and regular

income are key investing goals. They route three-fourths of their

investments into financial assets, primarily equity and debt. They have

the largest proportion of investments in equity. The remainder one-

fourth is invested in real estate, a pattern which they share with the

Self-made.

Our survey showed interesting trends in the investment preferences

and future investment plans of ultra HNIs. The survey compared

the assets in which respondents are currently invested in with their

investments over the past one year and their planned investment

over the next one year.

Two trends were noteworthy.

1) There is expected to be a cyclical move away from equities.

2) Respondents expressed a desire to increase their exposure

towards alternate or less traditional asset classes, such as hedge

funds, private equity, and derivatives.

In terms of the current investment pattern of ultra HNIs, 37.2 per cent

of the investable surplus is deployed in real estate, followed by

33.1 per cent in equity, 20.4 per cent in debt and the balance

9.2 per cent in alternate assets.

The Inheritors have a distinct preference for real estate with 40 per cent

of their investments in this asset class. This is markedly different from

the investment pattern of the Self-made and the Professionals who

Alternate assets


Debt

Equity

Real estate

Professionals put the largest chunk of investments in financial assets

31.9% 31.0% 39.7%

8.5% 11.1% 8.1%

40.3% 39.1% 26.4%

19.3% 18.8% 25.8%

Inheritors Self-made Professionals


currently have just a little over a quarter of their investments in real

estate. In terms of the investment pattern a year ago, the Self-made

have pruned their real estate investments significantly from 42.7 per

cent then to 26.5 per cent currently.

Our survey also suggests that regional biases to investment still

remain. Wealthy investors in Delhi and Bengaluru are more focused

on amassing portfolios of property (Delhi - 50 per cent of ultra HNI

investment is in real estate followed by Bengaluru at 37 per cent) as

indicated by their current investment pattern, whereas the ultra HNIs

in Mumbai are far more likely to put money in equity (37.2 per cent of

ultra HNI investment in equity).

Risk averse they well may be, but ultra HNIs can spot an opportunity

if they see one. Unsurprisingly, therefore, ultra HNIs of all hues have

been drawn to less traditional asset classes, even if they do not quite

understand them, given the proliferation of such products in recent

times. Hence, the growing popularity of hedge funds, private equity,

derivatives and the like.

Despite this appetite for alternate asset classes, only around half of

the respondents professed confidence in their knowledge and

understanding of them.

Around 55 per cent of the interviewees said they were comfortable

with leaving the more mainstream aspects of personal finance, such as

estate planning or retirement planning, to their wealth managers.

32.2%Equity

Land and property hold greater attraction for

ultra HNIs in Delhi

Bengaluru


Mumbai

22.8%Debt

7.9%Alternate

assets

37.0%

Real estate

23.2%Equity

37.2%Equity

17.4%Debt

9.3%Alternate

assets

Delhi

50.1%

Real estate

21.2%Debt

8.8%Alternate

assets

32.8%

Real estate


Risk-return profile of asset classes

Debt

Real estate

Mutual fund

Private equity

Portfolio management

services

Cash

Equity

Return

Risk

Bullion

Wealth advisory

Fixed deposit


This lack of knowledge is perhaps the reason for the increased

willingness to seek advice from professional investment managers.

Previously, most ultra HNIs invested in a few asset classes, using local

brokers, chartered accountants, or tax consultants. Also, traditionally,

the wealth management market in India was served by those that

cross-sold mutual funds and banking products to the rich.

One reason for this is structural – most of these investments carry a

minimum investment that is sufficiently high to restrict them to the top

wealth brackets. Another reason is diversification of risk. Adding some

private equity, hedge fund or derivative exposure to a portfolio can

help to diversify overall levels of risk by spreading it across a wider

range of assets. More interestingly, these specific financial instruments

are expected to deliver better financial returns and help cushion

investors against volatility in the market.

Investment advice from professional sources is most sought after

55.0% Wealth managers

50.4% Self

42.7% Friends / Family

39.7% Chartered accountants

34.4% Private financial advisors

19.1% Media

13.0% CFO

12.2% Broker

9.2% Others

8.4% Lawyers6.1%Family office


Note: Ultra HNIs rely on a multi-profile team of advisors. The percentage values of the various categories therefore do not add up to 100%.

Ultra HNIs investments in alternate assets to increase

Alternate assets


9.3% 11.2%

20.4% 18.2%Debt

Equity 33.1% 30.1%

9.5%

20.8%

31.6%

38.1% 37.2% 40.5%Real estate

2009-10 E 2010-11 E 2011- 12 P



Blood thicker than water?In an era in which entrepreneurship and enterprise are becoming

increasingly well-trodden routes to wealth, and in which ultra HNIs

such as Warren Buffett and Bill Gates have decided to leave the vast

majority of their estate to charitable causes, it may be tempting to

conclude that the desire to leave wealth for the next generation is

becoming less prominent. Such temptation, our survey indicates, is

misplaced.

While a minority contended otherwise, the desire to preserve wealth

for the future and transfer wealth to the family was fairly universal. And

it probably always will be.

“It is important in case of a family business. You would want your ideals,

legacy to continue with your blood only,” one of the Inheritors

commented.

Others were not quite so certain. While one said, “Having put in so much

hard work on building something, you need to know who will use it

finally,” another individual was more forthright. “My company is a

professionally run firm, they can always hire a new CEO,” he quipped.

Slightly under 60 per cent of the interviewees agreed that they want to

make sure they have enough money so that they can pass it to the next

generation. This is followed by social security (53 per cent of the

respondents) and the need for regular income (47.5 per cent).

Our survey suggests that the motivation to ensure financial security for

children is the highest among the Self-made, with 65 per cent of them

stating it as one of the prime motives for them to create wealth. This

perhaps has to do with the fact that they are the first-generation rich.

The Professionals, however, believe that it is not a good idea to leave

large sums of money to dependents; only 47.6 per cent of them agreed

that leaving a legacy for the family and kids is an important motivation

for them.

High profile cases aside, philanthropy seems to be only a moderate

motivation for investing. For the ultra HNIs who have inherited from a

long lineage within their family, they feel (and are often legally)

restricted with what they can do with it. As a result, they give very little

away. Our survey suggests that less than 15 per cent of the ultra HNIs

who have inherited wealth would want to give back to society. Some of

them had pretty strong views.

“I don’t believe in donating. My wife though does a lot of charity. I don’t

believe in it. Instead of giving a fish to eat, teach someone how to fish,

you will be feeding him for life,” opined one.

On the other hand, the Professionals are more likely to shy away from

passing wealth to their children; instead they are more apt to spend it

during their lifetime, and are increasingly keen to apply their business

acumen (and wealth) to the charity sector. Close to 29 per cent of the

professionals stated philanthropic causes as a goal for wealth creation

and protection.

“I believe that when you are comfortable you should ensure a few more

are also comfortable,” one Professional said.

For this group, philanthropy has often been based more around giving

time rather than money. Further, the tendency to shy from public

recognition and a clear desire for privacy characterises these

benefactors.


Charity

14.8% 15.0% 28.6%


Legacy forthe family

Social security

Regularincome

60.7%

54.1%

37.7%

65.0%

47.5%

70.0%

61.9%

33.3%

47.6%

53.3%

59.8%

47.5%

17.2%

Legacy and social security are the two most important goals of wealth creation for ultra HNIs as a whole

Inheritors Self-made Professionals Overall

Note : As the respondents gave multiple responses, the percentage values do not add up to 100%.


DisclaimerKotak Mahindra Bank (“Kotak”) and CRISIL Research, a division of CRISIL Limited (“CRISIL”), have taken due care and caution in preparing this Report. The information has been obtained by

Kotak and CRISIL from sources which they consider reliable, including information developed in-house. However, Kotak and CRISIL do not guarantee the accuracy, adequacy or completeness

of any information and are not responsible for any errors or omissions or for the results obtained from the use of such information. For data reference to any third party in this material, no such

party will assume any liability for the same. Kotak and CRISIL are not liable for investment decisions, which may be based on the views expressed in this Report and the recipient alone shall be

fully responsible / are liable for any decision taken on the basis of the material contained in this Report. Kotak and CRISIL especially state that they have no liability whatsoever to the

subscribers / users / transmitters / distributors of this Report for any loss, damage of any nature, including but not limited to direct, indirect, punitive, special, exemplary, consequential, as also

any loss of profit in any way arising from the use of this material in any manner.

CRISIL Research operates independently of, and does not have access to information obtained by CRISIL’s Ratings Division, which may, in its regular operations, obtain information of a

confidential nature which is not available to CRISIL Research.

No part of this Report may be published / reproduced in any form without prior written approval from Kotak and CRISIL. This Report is meant for information purpose only. Persons into whose

possession this Report may come are required to observe these restrictions.

Vinaya Dongre

Head - Business Development

CRISIL Research

Mobile: +91 9920225174

If you have a query, please contact :

Harita Desai

Associate Vice President - Wealth Management

Kotak Mahindra Bank Ltd.

Mobile: +91 9930070575


net worth of india’s ultra hnhs to grow 5 times to 235...

Documents