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THE INDIAN ULTRA HNI

Optimism Uninterrupted
 Foreword

Foreword
What an exciting year 2015 has been! India we have profiled four unique individuals whose
emerged one of the strongest larger economies ventures and investments have set out towards
in the world, despite bumps such as the stress sustainable and positive changes.
in the banking sector and a choppy stock
market performance. For ultra HNIs, last year’s Our annual survey delved into the details of
positivity flowed through into this year (Optimism another interesting development – from treating
Uninterrupted) with reforms taking root, inflation death as taboo, India’s jet set has started facing
under control, and economic growth looking up. the inevitable head-on and is actively providing
for and simplifying the lives of their loved ones,
Our annual report, Kotak Wealth Management’s employees, and dependents through succession
Dipak Gupta Top of the Pyramid (2016 edition), continues to planning initiatives. Top of the Pyramid looks at
Joint Managing Director capture the mood of the ultra HNIs in India in the the various means that the ultra HNIs employ to
Kotak Mahindra Bank Ltd. context of the country’s changing socio-economic plan for progression.
landscape. Top of the Pyramid remains the last
word on the lifestyles, aspirations, and opinions of As always, Top of the Pyramid takes you through
India’s most wealthy. In addition to analysing the the extraordinary and remarkable lives of India’s
spending and investment patterns of the ultra HNIs that continue to stay firmly at the helm
ultra HNIs, for 2015, Top of the Pyramid also covers of India’s development journey.
their increasing interest in art and collectibles, and
their growing affinity for wearable devices. Happy reading!

The edition has looked at the growing tendency

among the ultra HNIs to incorporate increasing
‘goodness’ into their lives. Two such inclinations
have emerged strongly – their keen interest in
renewable energy and their increasing bent
towards investing in companies that make a
sustainable difference to many people’s lives, also
known as impact investments. In this context,

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TOP OF THE PYRAMID 2016 | Kotak Wealth Management

INSIDE THE REPORT

04 About the report

08 Executive summary

12 Optimism Uninterrupted SPECIAL FOCUS

43 Succession Planning 
Modes of succession planning

 Activities and time allocation

Implementation

PROFILE
Ms Shaheen Mistri
Founder, Akanksha Foundation
& CEO, Teach For India

19 SPENDS
 Income allocation
Areas of spends
 Apparel and accessories SPECIAL FOCUS

 Art and paintings

37 Collectibles
Wearable devices
Type of collectibles

Sources of purchase
PROFILE
Mr Nagaraja Prakasam Key drivers
Partner, Acumen Fund

02
SPECIAL FOCUS
SPECIAL FOCUS
55 Renewable Energy
Importance of renewable energy
73 Impact Investment
Types of renewable energy and  Ultra HNI exposure to impact investment
investment patterns  Sectors in impact investment
Key drivers  Key drivers

 Investment modes
PROFILE
Mr Vinod Keni PROFILE
Co-founder & Partner, Ms Roopa Kudva
Peachtree Management Advisor Partner & Managing Director,
Omidyar Network India Advisors

63 INVESTMENTS
Sources of wealth and 
 asset allocation

Commodities

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 TOP OF THE PYRAMID 2016 | Kotak Wealth Management

About the
Report
op of the Pyramid is Kotak Wealth behaviour in apparel and accessories, art
Management’s annual publication that and paintings, and wearable devices. The
covers the spending, investment and special focus of this year’s edition is collectibles,
lifestyle patterns of ultra-high-networth renewable energy, succession planning and
individuals (HNIs). Kotak Wealth Management, impact investments.
the private banking arm of Kotak Mahindra Bank,
commissioned professional services firm Ernst & Making of Top of the Pyramid 2016
Young LLP (EY) for the report.
During our research, we observed that
EY collaborated with market research firm emerging cities and small towns continue to
Feedback Consulting for the survey to study and form a significant part of the Indian ultra-HNH
analyse ultra-HNI trends. For its projections, EY population. We found that besides the top-four
used parameters such as GDP growth, savings and metro cities, non-metro cities such as Bengaluru,
inflation rates, past and projected financial and Ahmedabad, Pune, Hyderabad, Nagpur,
non-financial asset-class allocations, and returns. and Ludhiana contribute 45% to the Indian
ultra-HNI population.
With the advent of improved government
policies and reforms, both accomplished and The current report is a culmination of insights
planned, India has emerged as a much stronger from three main sources that are listed below:
This year saw a economy. These government initiatives have
7% increase in influenced the investing and spending patterns of 1.A detailed market survey of 225 ultra HNIs
the number of ultra high-networth households in India. This year by Feedback Consulting. The survey took place
ultra HNHs to saw an increase in the number of ultra between January 2016 and March 2016 in the
about 146,600. HNHs to about 146,600 (7% growth over last form of face-to-face interviews. These interviews
year). It is this continuing positive sentiment were conducted over 12 cities to understand the
This continuing
that is captured in the theme of the report – lifestyle of ultra HNIs in India and changes over
positive sentiment
“Optimism Uninterrupted”. the previous year.
is captured in the
theme – “Optimism While looking at their spending and investing 2.A series of interviews were conducted with
Uninterrupted” patterns, the report has explored ultra-HNI ultra HNIs to understand their patterns and

04
 About the Report

preferences in impact investments, renewable survey and validated its conclusions through
energy, collectibles, and art and paintings. In primary interactions with service providers.
addition, their spending patterns in apparel and
accessories and preferences in wearable devices This report would not have been possible without
were also studied. the cooperation of all the survey respondents
and the interviewees. We thank them for their
3.Secondary research and additional analysis invaluable support, the time they put at our
by EY. EY extensively analysed the results of the disposal, and the insights they offered.

Covers of the last five editions

2011 2012 2013

2014 2015

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TOP OF THE PYRAMID 2016 | Kotak Wealth Management

About Kotak Mahindra Group Kotak Group’s solutions are technology driven,
contemporary, and comprehensive, and they
The Kotak Mahindra Group has come a long way span consumer, commercial, corporate and
since its early days and caters to diverse financial investment banking, wealth management, retail
needs of individuals and the corporate sector, and institutional equities, asset management, life
nationally as well as internationally. With its and general insurance. The bank is channelising its
understanding, experience, infrastructure, and industry experience and capabilities to cater to its
most importantly, its commitment, the Group changing customer aspirations.
consistently delivers pragmatic solutions.
Effective April 1, 2015, ING Vysya Bank Ltd.
Kotak has consistently pursued opportunities merged with Kotak Mahindra Bank Ltd. creating a
and capitalised on them in a rapidly changing `2 trillion institution (consolidated). As on March
economic and business landscape. 31, 2016, the merged entity – Kotak Mahindra
Bank Ltd, has a significant national footprint of
In the early period of Kotak’s journey, one 1,333 branches and 2,032 ATMs spread across 674
particular day stands out – 21, November 1985. locations, affording it the capacity and means to
On that day, Mr Uday Kotak identified an serve its customers even better.
opportunity in the bill-discounting market. With
a seed capital of less than US$80,000, borrowed About Kotak Wealth Management
from family and friends, and a small team of three
that has grown to over 40,000 as on March 31, Kotak Wealth Management is Kotak Mahindra
2016, he skillfully steered what was initially a bill- Bank’s private banking arm. It provides financial
discounting startup into a giant financial services advice to some of the most distinguished high-
conglomerate with assets of US$19 billion. networth families in the country. It is one of the
oldest and the most respected wealth managers
In February 2003, Kotak Mahindra Finance Ltd., in India with over 16 years of experience. Its
the group’s flagship company, received a banking client base ranges from entrepreneurs to business
license from the Reserve Bank of India (RBI), families and employed professionals, including
becoming the first non-banking finance company over 40% of India’s top-100 families (as per the
in public to convert into a bank – Kotak Mahindra Forbes India Rich List, 2015).
Bank Ltd.

06
 About the Report

We believe that no single asset class tends Kotak Wealth Management has been adjudged
to perform consistently over a long period and the Best Private Bank - India for the 7th year in a
that an HNI needs to have access to various row, by FinanceAsia Country Awards 2015.
asset classes, investment styles, themes, and
tenures. With this philosophy, Kotak has built a
formidable suite of products and services for this
specific audience.

Our offerings are customised for the client’s

profile and investment objectives. With an
in-depth understanding of the client’s
requirements and of various asset classes, Kotak
offers the widest range of financial solutions
through a transaction-based investment approach
or the asset-advisory approach. Our truly bespoke
banking solutions also include one of the most
premium credit card propositions offered, by
invitation, to eminent clients.

We also offer ‘Family Office Services’ to

ultra-high-networth investors, providing
comprehensive financial solutions that go
beyond investments. Through ‘Kotak Mahindra
Trusteeship Services’ we offer estate planning
services that deal with succession planning by
creating private family trusts.

We have maintained our leadership position due

to our in-depth understanding of our clients'
requirements and the macro environment, and
our prowess over various asset classes.

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TOP OF THE PYRAMID 2016 | Kotak Wealth Management

Executive
Summary
Optimism about growth boosted both spends and investments

n FY16, India emerged as one of the they treasure the absolute pleasure of owning a
strongest economies the world over, beautiful and timeless creation, but also because
because of robust GDP growth and owning art has started making sound business
reduction in both inflation and current- sense due to its manifold value appreciation.
account deficit. This translated into In this light, ultra HNIs are increasingly treating art
improved ultra-HNI sentiment, which is reflected and paintings as an integral component of their
in their increased spends and investments. portfolios. Even so, our survey shows that
for 68% of ultra HNIs, art and paintings are
We estimate that the number of ultra HNHs grew impulse purchases; only 32% engage in research
to 146,600 in FY16 from around 137,100 last year, before buying.
a moderate growth rate of 7% over one year and
16% compounded growth over five years. If e-commerce was the buzz last year, this year
wearable devices are gaining ground from a
Optimism about economic growth has motivated technology perspective and have become very
ultra HNIs to increase their investments into popular. Ultra HNIs have followed and adopted
their primary businesses as well as to boost this trend keenly, so much so, that these devices
their spends. Most of their spending categories now form a part of their daily lifestyle. Popular
have seen an increase. Jewellery, apparel, and devices include smart watches, fitness bands,
electronics continue to be at the top, accounting smart glasses, virtual reality headsets, and sleep
for nearly 50% of total spends. In our interactions, headphones – to name only a few. These wearable
we found that 64% ultra HNIs are impulsive devices are carving out a niche for themselves
buyers when it comes to apparel and accessories. in catering to specific needs – such as fitness
Despite the allure of foreign destinations, many bands for health-conscious individuals and smart
of them prefer to shop within India, as most major watches to aid convenience.
foreign luxury brands are now available locally.
Another area of passion for the ultra HNIs
There has also been increasing awareness about continues to be collectibles. They do not leave
art among the ultra HNIs, not only because any stone unturned to collect items that add to

08
 Executive Summary

the grandeur of their living rooms, office spaces, towards solar rooftops and boilers and wind-
or atriums. Passion is a major factor in pursuing driven machinery, mainly because of government
collectibles – 70% of ultra HNIs that we interacted incentives. This is likely to be a big focus area for
with confessed that their passion for owning a ultra HNIs.
collection of exotic and interesting items drove
their purchases. As their wealth continues to grow, it becomes
very important for ultra HNIs to pass it on to
Renewable energy has been an important upcoming generations in a systematic manner,
component of India’s energy planning process which ensures sustainable growth. Today, most
for more than four decades and ultra HNIs have ultra HNIs understand that succession planning is
always been enthusiastic about adopting and a continuous and proactive process, and their plan
promoting renewable energy. involves identifying potential leaders, grooming
them, and encouraging them to look beyond their
Most of them strongly believe in an eco-friendly immediate responsibilities.
lifestyle and strive to re-use resources, to plant
trees, and to use electric / alternate fuel cars. Our survey revealed that 43% of ultra HNIs
Socially conscious and environment-friendly prepare for at least five years to put an efficient
ultra HNIs are increasingly adopting ‘green’ succession plan in place, while another 35%
building practices to minimise the footprint of take anywhere between two to five years.
their homes on the ecology while maximising When it comes to a successor, over 90% of
comfort. This sector is also seeing investments ultra HNIs choose from their children and high-

Optimism about economic growth has

motivated ultra HNIs to increase their investments
into their primary businesses as well as to
boost their spends

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TOP OF THE PYRAMID 2016 | Kotak Wealth Management

Increased spends are a good proxy for

rising optimism and are likely to continue
with steady economic growth

performing family members, while less than 10% As part of alternate assets, commodities attracted
choose outsiders. ultra-HNI interest this year. Our survey revealed
that 72% of ultra HNIs invest in commodities; of
However, this trend is likely to change in these, 40% have invested about 5-10% of their
the future because of the increasing need total assets in commodities, with gold and silver
for professional management from a good continuing to be the most preferred. This trend
governance perspective. Even today, most ultra is likely to continue until equity markets start
HNIs (73%) prefer planning for succession with picking up.
their close confidants; a few look for advice from
external sources such as chartered accountants, The philanthropic interest of ultra HNIs has
consultants, and wealth managers. People are also seen a change over the years; the need to
gradually relying on professional estate planners, build enterprises that not only create a positive
trustees, and wealth advisors. difference in society, but ones that are self-
sufficient, economically viable, and lasting,
The bullish trend in equity markets saw a reversal essentially ‘sustainable social enterprises’, is
this year with a near-20% fall, mainly due to very strong. This has led to the emergence of
global events such as a sharp plunge in the impact investing – a growing trend among the
Chinese stock markets and a drop in foreign fund elite. While the general interest for impact
flows. This led to a realignment of the investment investments is high, professionals seem to have
mix – with real estate (mainly commercial), debt, the highest inclination – 67% have an exposure to
and alternate assets gaining ground at the cost these investments. Key sectors attracting impact
of equities.

10
 Executive Summary

investment include financial services, clean energy, on better government and private consumption
and affordable housing. and spending outlook. Increased spends are a
good proxy for rising optimism and are likely to
The impact-investment space is receiving continue with steady economic growth.
traction from the ultra HNIs, mainly based on Higher propensity towards spending also brings
the attractiveness of the sector and stability of good tidings for the luxury goods market, which
returns. In addition to the existing Indian funds seems to be getting stronger in India and is
focusing on the segment, there is also a trend spreading out its reach to capture smaller towns
towards impact-investment-focused global funds and cities.
setting up shop in India, which will give further
impetus to this sector.

The economic scenario has remained steady

and the mood of ultra HNIs is buoyant based

As their wealth continues to grow, it becomes

very important for ultra HNIs to pass it on
to upcoming generations in a systematic
manner, which ensures sustainable growth

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TOP OF THE PYRAMID 2016 | Kotak Wealth Management

Optimism
Uninterrupted!
The ultra HNI mood has been
upbeat because of strong economic growth

Y16 was one more step towards a Falling oil prices also had a positive impact on the
stronger India. Stability in GDP growth seen current account deficit, which was at 1.1% of GDP
this year (7.6% in FY16, 7.2% in FY15), for FY16.
even as other BRICS nations and major
economies struggled, was a strong indicator of The government’s flagship policies – Start-up
sustained progress. India’s GDP growth surpassing India Action Plan, Make in India and Smart Cities
China’s was another milestone, one that India are gaining traction both in India and abroad.
should be able to sustain. The quantum and These initiatives intend to strengthen India’s
magnitude of the government’s reforms, both infrastructure; they have already translated into
accomplished and planned, are also indicators of
a stronger economy. The government’s flagship
policies – Start-Up India
Other factors that contributed to India’s progress
were a fall in crude oil prices and inflation coming
Action Plan, Make in
in below the target range, which allowed the India, Smart Cities, and
RBI to reduce its repo rate twice in FY16. This Swachh Bharat – are
move is likely to reduce cost of borrowing and
gaining traction both in
stimulate growth by encouraging investment in
the corporate sector. India and abroad

12
 Introduction

on-ground investment and led to the

country becoming an attractive FDI destination. Growth of Ultra HNHs in India
While India still has a while to go before being We believe there were 146,600 HNHs in FY16 with an
counted among the best economies, strong signs accumulated net worth of `135 trillion
are emerging.

With rising pollution levels, especially in metro

cities, there is an increasing awareness about
the environment. The government has launched
several initiatives to tackle this issue, which has
`86 `128
also prompted interest from the private sector.
Ultra HNIs have evinced interest in investing
`45 `65 trillion
`104
trillion
trillion `135
trillion trillion
into sectors focused on tackling social and trillion
environmental issues. 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16
62,000 81,000 100,900 117,000 137,100 146,600
On the global front, the Chinese market crash
was a result of perceived weakness in the Chinese
economy, which in turn was interpreted as a sign
of an impending global downturn. The Indian
stock markets also suffered from the effects, with
a sharp correction and general cautiousness in
sentiment through the year.

The US Presidential election due this year, and

the Brexit, are something that India is following
Combined Net Worth Number of Ultra HNHs
closely; both events have a considerable bearing
on global economies, especially India’s.
Source: Top of the Pyramid 2016, Kotak Wealth Management

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TOP OF THE PYRAMID 2016 | Kotak Wealth Management

India’s Ultra High Networth Households

Our current edition of ’Top of the Pyramid’ higher at 17% and 22%). These HNHs represent
follows the previous editions’ methodology. We an accumulated net worth of `135 trillion, which
define an ultra HNI household (HNH) as one with a is a 5% growth on last year’s wealth and 18%
minimum net worth of `250 million, mapped over compounded growth over the last five years.
10 years. Growth in the number of ultra HNHs was
a bit slower this year. We project that the number of ultra HNHs will
increase to 294,000 by FY21 with a combined net
We estimate that there were about 146,600 worth of `319 trillion driven by new ultra HNHs
ultra HNHs in FY16 vs. around 137,100 last year, from emerging sectors and new avenues for
a moderate growth rate of 7% over one year investments that give higher returns. Smaller cities
and a 16% compounded growth over five years will also contribute to this growth in the number
(corresponding growth rates last year were of ultra HNIs and their wealth.

Growth in the Number of Ultra HNH Households

We expect these to touch 294,000 by FY21 with a combined net worth of `319 trillion

146,600
Compounded `135
growth of the trillion
294,000
2015-16
number of ` 319
Indian HNHs trillion
over the last five 2020-21
years was 16%
with 146,600 Combined Net Worth Number of Ultra HNHs

such households Source: Top of the Pyramid 2016, Kotak Wealth Management

in FY16

14
 Introduction

Small centres such

The Geographical Spread of Ultra HNHs in India as Surat, Indore
While metros continued to hold 55%, emerging cities and small towns and Jamshedpur
stayed at a significant 45%
continue to create
new ultra HNIs,
mainly in the
inheritor and
entrepreneur
categories

23% 5 %
17%

55%

Top 4 cities: Mumbai, Delhi, Chennai, Kolkata

Next 6 cities: Bengaluru, Ahmedabad, Pune, Hyderabad, Nagpur, Ludhiana Rest of India
Next 11-20 cities: Chandigarh, Surat, Jaipur, Lucknow, Kanpur, Jamshedpur, Amritsar, Raipur, Indore, Aurangabad

Source: Top of the Pyramid 2016, Kotak Wealth Management

The business and investor-friendly approach of As predicted in previous editions of ‘Top of

the government will help nurture and sustain a the Pyramid’, we believe emerging cities and
start-up ecosystem in the country, and propel the small towns will continue to form a significant
growth of ultra HNHs. proportion of the ultra-HNH population-

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TOP OF THE PYRAMID 2016 | Kotak Wealth Management

exclusivity – this helps address key imperatives

Indianisation of their
for luxury brands operating in India, which are to
brands has been increase the awareness of the brand and establish
tried earlier by brand credentials.
international luxury
While Indian luxury private labels are known to
companies to increase have product lines that are largely ‘Indian’, there
their appeal are a few instances where international luxury
brands have ‘Indianised’ their product lines,
we estimate 45% coming from these non- commonly seen in the food industry.
metro centres. The penetration of the digital
phenomenon is influencing and changing the way This is not a new phenomenon – even earlier,
people in India buy not just common goods, but international luxury brands have tried this
also luxury items. Until a few years ago, luxury approach to increase the appeal of their products
retailers thought that selling these exclusive goods in smaller cities, but it has not gained the traction
needs a personal touch at their outlets, but they and the attention it deserves. It would be
are slowly warming up to the idea of an online interesting to see if international luxury brands
marketplace. are able to successfully employ Indianisation as a
way to increase their reach and capture traditional
In fact, the difficulty in establishing a connection Indian ultra HNIs.
with the non-metro customer base is the primary
reason that luxury brands are turning towards The subsequent chapters of ‘Top of the
the fast-permeating digital phenomenon. A few Pyramid’ will take you through the current
retailers are also adopting models such as ‘on- lifestyle trends and investment patterns of Indian
demand home shopping’ for customers from non- ultra HNIs.
metros and small towns.
The report this year covers unique themes such
The quest to reach a wider population is also as collectibles, renewable energy, succession
aided by start-ups with innovative models, planning and impact investment capturing the
which are introducing ‘experiencing’ luxury and dynamic lifestyles of ultra HNIs.

16
 Introduction

The Key Attributes of

Ultra HNIs in the Indian Context
The following table gives the key attributes across three categories of ultra HNIs –
entrepreneurs, inheritors, and professionals – in the Indian context

Entrepreneur Inheritor Professional

Entrepreneurship Inheritance,
entrepreneurship

Self-recognition Wealth preservation Self

and achievement and growth actualisation

Wealth is strictly for Wealth is for family,

Wealth must remain but they must strive
the immediate family within the family to earn it

Attainment of Maintaining a Attaining value

luxurious lifestyle luxurious lifestyle for money

Provides mainly Important part of the

monetary support, Compassionate, spending, provides
provides money time and money
less time

More opportunistic, Organised Disciplined and

planned with
informal and planned systematic goals

Sources of wealth Motives for wealth creation Attitude to perpetuation of wealth

Drivers for spending Attitude to charity Approach to investing

Source: Top of the Pyramid 2016, Kotak Wealth Management

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TOP OF THE PYRAMID 2016 | Kotak Wealth Management

18
 Spends

HOW THE ULTRA HNIs

FOCUS
SPEND
ON

LUXURY
UNABATED!
The celebration continues
The average age of an Indian ultra HNI is reducing, and nearly half of them
are now less than 40 years old. Increasing number of start-ups have aided this
fall in average age. Good performance of the Indian economy, as evident from
high GDP growth, is reflected in rising ultra HNI spends this year.

Increasingly younger ultra HNIs, with high disposable incomes and an ample
choice of luxury options, are usually high spenders. They are also the ones
who are largely responsible for bringing in concepts such as ‘experiential
luxury’ into the limelight.

The recent ecommerce and technology boom has created many relatively
young ultra HNIs who have sky-high aspirations and desires when it comes
to luxury in their lifestyle. Luxury retailers have recognised this opportunity,
and are already aiming to capture the mind space of these young guns by
engaging in targeted marketing. This is one of the reasons for the rapid
expansion of these retailers into smaller centres to leverage, on the increasing
ad-hoc spends of these ultra HNIs.

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TOP OF THE PYRAMID 2016 | Kotak Wealth Management

Ultra HNIs Choose Investments over Savings

In FY16, India recorded the highest GDP growth investments into primary businesses. This year,
among major world economies, thereby 59% of the ultra HNIs we surveyed increased their
incentivising various stakeholders to increase their investments into primary businesses and 43% saw
investments into the economy. Inflation saw a a decrease in their overall savings, which they
downward trend – with June 2015 recording the substituted with investments.
lowest monthly CPI of 3.69% since FY14’s high of
over 11%. Consequently, the RBI cut rates twice Non-discretionary expenses continued to
in FY16 (cumulatively by 0.75%), even after it had dominate their income allocation, except in the
already effected two rate cuts of 0.25% each, just case of entrepreneurs, for whom investments into
before the start of the financial year. businesses became a priority. For professionals,
the proportion of savings reduced over last year,
The rate cuts led to a fall in lending rates and with a commensurate increase in their investments
ultra HNIs turned to substituting savings for for personal wealth.

How Ultra HNIs Allocated their Income this Year

Prioritised investments into primary businesses and personal wealth over savings

23% 15 %
Discretionary
Investment into expenses
primary business

Expenses 25%
45 % Non-discretionary
Savings and expenses
14% Investments
Savings
55%
16%
Investment for
personal wealth

2% 5%
Others Charity

Source: Top of the Pyramid 2016, Kotak Wealth Management

20
 Spends

Family-Centred Expenses see a Spike

Jewellery and apparel continue to remain ultra
HNIs’ top-spending categories, followed by Allocation of Income by Ultra HNIs
holidays. Family-centred expenses – spending Professionals reduced savings this year, to choose
on jewellery, holidays, apparel, automobiles, investments for personal wealth
home décor and events – continue to dominate
by contributing to 68% of overall spends, a slight
increase over 67% last year.

A higher proportion of ultra HNIs compared Entrepreneur Inheritor Professional

to last year are now considering these
family-related expenses (except home décor) as
Investment into
non-discretionary.
25% 23% 17% primary business

In the jewellery space, Indian boutique

jewellers are becoming popular. Recently, a
Non-discretionary
prominent Indian jewellery designer’s collection expenses
of customised diamond cuts was worn by a 24% 27% 23%
Hollywood celebrity at the Oscars, making it so
popular with the ultra HNI that his company is
Discretionary
coming out with a `1000 crore IPO. expenses
15% 15% 16%
Apparel and accessories are the second biggest
5% Charity
spending avenue for ultra HNIs, and one of the
5% 4%
primary ways that they showcase their wealth and

Savings
A renowned Hollywood actress 14% 13% 19%
wore the collection of a
prominent Indian jeweller at Investment for
the Oscars — this boosted the personal wealth
15% 15% 19%
popularity of the jeweller among
the ultra HNI. The jeweller is 2%
2% 2% Others
now planning a `1,000 crore IPO!
Source: Top of the Pyramid 2016, Kotak Wealth Management

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TOP OF THE PYRAMID 2016 | Kotak Wealth Management

Jewellery and Apparel Retain the Largest Share within Areas of Spending
Share of apparel and accessories, holidays, and electronic gadgets increased

Jewellery Apparel Holidays

17% Electronics
16% 15% Home
Related
13% Events
11%
9%
Luxury Vintage Art &
Watches Spirits Paintings Automobile

5% 5% 5% 4%

Source: Top of the Pyramid 2016, Kotak Wealth Management

passions. In an attempt to capture the interests Almost all areas of spends have seen an
of India’s ultra HNIs, subsequent chapters detail increase over last year, indicating positive
their spending preferences on apparel and sentiment among ultra HNIs, driven by improved
accessories, in addition to their interest in economic outlook.
wearable devices, art, automobiles, and events.
We have also captured their growing interest in a Luxury companies looking to woo young ultra
sustainable lifestyle and renewable energy as an HNIs and garner a large share of their lifestyle
investment avenue. spends are likely to take a cue from this pattern.

22
 Spends

UPSCALE ELEGANCE
Designer-wear and expensive accessories are haute with the Indian ultra HNI

he ultra HNIs live in a world filled with the brim with the latest outfits from premier When a member
innumerable business appointments, luxury brands. In their purchases of apparel and
of the British
luncheons, formal dinners, and high-brow accessories, brand value is what pulls at the ultra-
royal family
events, adorned and embellished by a HNI heart and purse-strings the most. They cannot
landscape of beautiful clothes – elegant business resist the tasteful temptation of the limited- wore an outfit
suits, sophisticated foreign labels, and exclusive edition release of luxury-brand items, and it by a high-end
collections by stylish designers, both from India usually turns into an impulse purchase. Indian designer,
and abroad. the designer’s
In our interactions with ultra HNIs, we found that website crashed
This section attempts to peek into the glamorous 64% of them are impulsive buyers when it comes
due to enquiries
wardrobes of India’s richest, usually filled to to apparel and accessories.
from all across
the globe

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TOP OF THE PYRAMID 2016 | Kotak Wealth Management

While ‘branded luxury’ was the most important Dubai and Singapore have emerged as other
driver in their apparel choices (32% of them said popular destinations for apparel and accessory
that this was their first priority), weather-specific shopping, while Europe is the next most popular.
choices in clothing was important for 26% of ultra What they really value is variety and exclusivity.
HNIs. Interestingly, men were found to be more
brand conscious compared to women! Many Indian ultra HNIs and their family members,
particularly women, are true fashionistas at
Not too long ago, visiting a foreign location for heart. They own exquisite collections of Indian
shopping and other purchases was de riguer for and western wear, which are integral to the
these brand-conscious ultra HNIs because of the various high-profile events that they attend
limited choice that shopping in India had to offer. almost daily. Most ultra HNI wardrobes, especially
However, this is not strictly necessary anymore - women’s, are sure to include luxuriously
we observed through our survey that as many embellished Indian-wear crafted by prominent
as 59% ultra HNIs now satisfy their apparel and Indian designers and accessories from top-end
accessory purchase needs in India itself. international brands.

Popular Buying Destinations for Apparel and Accessories

India is the favourite, followed by Dubai, Singapore and Europe

India Dubai Singapore Europe Thailand

59 % 28 % 28 % 19% 5%
Other destinations 3%
Source: Top of the Pyramid 2016, Kotak Wealth Management

24
 Spends

The Frequency of Apparel and Accessory Purchases

Once a quarter to once a month

15%
16% 9% 31%
15%
33%
33%
30%
41%
43% 41%
29%

7% 9% 19%
10% 9%
5% 1%
4%

Entrepreneur Inheritor Professional Overall

More than once a month Once a month Once a quarter Twice a year At least once a year

Source: Top of the Pyramid 2016, Kotak Wealth Management

In our interactions, we observed that while other aesthetics such as colours and amount of
professionals tend to have a lower frequency of decoration used to Indian tastes. A Lebanese
apparel and accessory purchases, entrepreneurs designer's spring 2016 collection was inspired by
and inheritors are more frequent buyers. Indian looks of the traditional saree and salwar
However, most ultra HNIs picked up these items kameez. A French luxury footwear and fashion
between once a month and once a quarter. designer launched a Bollywood-inspired shoe
collection which included traditional Indian
Interestingly, product catalogues of international designs and embroidery.
luxury brands have started showing an inclination
towards ‘Indianise, personalise, and customise’. Past offerings by top brands have set the tone
For example, a European pen manufacturer for the future in terms of trends in apparel and
regionalised all its marketing material letterheads, accessories, one that is increasingly inclusive of
invitation letters, and newsletters; it also altered Indian-ultra HNI tastes and desires.

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TOP OF THE PYRAMID 2016 | Kotak Wealth Management

ART AND PAINTINGS

For the simple pleasure of owning beauty

eorge Bernard Shaw is once believed

to have said, “Without art, the
crudeness of reality would make the
world unbearable.” Indian ultra
HNIs seem to be on the same page as
Mr Shaw – most have always been passionate
about art, but a growing number are now
considering it a safe haven for investment and a
means to preserve family wealth.

Art and paintings have always been an inherent

part of Indian culture, whether it is Mithila
Madhubani paintings, Rajasthani miniatures,
Mughal, Mysore, Pahari, Tanjore, and Rajput
paintings, Raja Ravi Varma’s inimitable style, or
Odisha’s pattachitras – they all are an important
part of India’s rich history.

With increasing awareness about art, not only

for the simple pleasure of owning a beautiful
and timeless creation, but also for the sound

Leading auction houses

focus on prolific Indian
artists besides other
modern figurative and
abstract artists

26
 Spends

What Drives Ultra HNI Purchases of Art?

Passion and status are key drivers

85% 81% 31% 28% 26%

Passion Status Tradition Networking Resale value

Source: Top of the Pyramid 2016, Kotak Wealth Management

business sense it makes due to its manifold value- deepen the market, thereby making this segment
appreciation, ultra HNIs’ are increasingly treating an alternative investment avenue.
art and paintings as an integral component of
their portfolio. Of the ultra HNIs we surveyed, 26% said that
they buy art and paintings for their resale value
Our survey shows that for 68% of ultra HNIs, art and as an alternate asset-allocation avenue,
and paintings are impulse purchases; only 32% given that this segment acts as an effective
engage in research before making a purchase hedge against inflation and weak economic
decision. For more than 80%, passion and status periods. In addition to individual ultra HNIs,
are key drivers for acquiring art and paintings. buying of artwork has seen heightened interest
Other reasons include tradition and networking. from the corporate sector and from institutions -
Ultra HNIs are combining their aesthetic sense in fact, the corporate segment has already
with their financial intuition to broaden and amassed significant collections.

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TOP OF THE PYRAMID 2016 | Kotak Wealth Management

Types of Paintings that Indian Ultra HNIs Like

64% prefer Indian paintings and 56% prefer western ones

64 56 35 24 33
Indian
%
Western
%
Dependent on
% %
Contemporary
%
Far Eastern
Historical Importance
Source: Top of the Pyramid 2016, Kotak Wealth Management

Indian art and artists have started receiving has led to Indian art becoming the first choice
global recognition; in fact, in the last few years, for ultra HNIs. Indian contemporary works also
Indian art has become a common feature in global sell at record-breaking prices in prestigious
auctions. Increasing awareness and appreciation auction houses.

28
 Spends

Last year, while

Sources of Purchases inaugurating
an art museum
It is extremely important for ultra HNIs to obtain Based on our survey, we have found that 71%
in Mumbai,
independent and objective advice while making ultra HNIs prefer to buy art and paintings from
a prominent
investments in any asset class, including high- art houses, 58% choose exhibitions, and 50% rely
value works such as art and paintings. The art on Indian auctions. Online galleries, international ultra-HNI family
market has grown considerably in recent years, auctions, and resale in secondary markets are also displayed
which presents interesting opportunities for preferred ways of buying art and paintings. 30 paintings
providers of art-related services, as well as for belonging to
wealth-management services that would integrate Baroda's royal
art in their services and strategies.
family

Where do Ultra HNIs Shop for Art?

Most prefer buying from art houses, exhibitions, and auctions

71%
Art House
50%
Indian Auction
20%
International Auction

58%
Exhibitions
38%
Online Galleries
16%
Resale in Secondary Market

Source: Top of the Pyramid 2016, Kotak Wealth Management

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TOP OF THE PYRAMID 2016 | Kotak Wealth Management

Spending Patterns on Art

Driven by high disposable wealth, the growing them twice a year. Only 10% spend on art at
ultra HNI population has triggered a change in least once in a quarter. While the interest levels
investment behaviour in art and paintings. Prices in art are high, the actual spending on art, in
are driven by a combination of availability, quality, comparison, is modest among the wider ultra HNI
and popularity. segment; 85% spend less than `10 lakh on art and
paintings in a year while only 3% invested more
Of the ones we talked to, 61% ultra HNIs purchase than `25 lakh per annum.
art and paintings only once a year and 29% buy
Our survey shows that average spends were
`7.5 lakh per year. This spending trend is likely
How Much do they Spend on Art?
to rise with the growing demand and popularity
Not much; 97% ultra HNIs spend less than `25 lakh per year
of Indian art across the globe and as ultra HNIs
develop a deeper understanding and appreciation

`10-25 Lakh 12% for art.

One of the world's

`25-50 Lakh 3% largest auction houses

85%
Less than `10 Lakh recently made a record for
any auction held in India -
by selling art worth `100
crore in December 2015,
highlighting the appetite
Source: Top of the Pyramid 2016, Kotak Wealth Management
Source: Top of the Pyramid 2016, Kotak Wealth Management
for Indian art

30
 Spends

ACCESSIBLE CONVENIENCE
Wearable devices becoming very popular

O
ver the years, the term ‘wearable’ has Interestingly, our survey showed that older
undergone a dramatic change. New ultra Indian HNIs, between the ages of
technology and its enthusiastic adoption 36 and 50 years, were more eager to adopt
have helped to create a whole suite of wearable devices than the younger ones;
electronic products that can be worn. Ultra HNIs we saw close to 61% adoption among the
have followed and adopted this trend keenly, so 36 to 50-year age group compared to 55%
much so that these devices now form part of their adoption among ultra HNIs who are below 35
daily lifestyle. years of age.

Increasing Prevalence of Wearable Devices among Ultra HNIs

57% of them use these devices in their daily lives

57%
Of ultra HNIs use
wearable devices
Source: Top of the Pyramid 2016, Kotak Wealth Management

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TOP OF THE PYRAMID 2016 | Kotak Wealth Management

Smart watches The quest for access to real-time information in an like sleep headphones – which block out noise
easy and convenient manner has led to as many to aid slumber, while being comfortable for the
are the new
as 57% of ultra HNIs becoming users of atleast sleeping user – are also gaining popularity.
rage among the
one high-end wearable device. What was once
ultra HNIs and considered fiction has now become a reality; These wearable devices are carving out a niche for
fitness bands are devices of the future are now exclusive and themselves in catering to specific needs – such as
also becoming more accessible. fitness bands for health-conscious individuals and
increasingly smart watches to aid convenience. These gadgets
popular Currently, popular wearable devices include smart assist users in something as simple as allowing
watches, fitness bands, smart glasses, virtual them to answer calls, to something as complex
reality headsets, and sleep headphones – to name as becoming their personal health assistants for
a few. Our survey uncovered that as many as 68% tracking sleep patterns and fitness regimes. We
of ultra HNIs have a smart watch – it seems to be have seen the children of ultra HNIs showing an
one of their most popular wearable devices. avid interest in wearable devices such as smart
watches, virtual reality headsets, and segues.
While only 32% of them use fitness bands, we
expect this usage to grow as awareness about The adoption of wearable devices has led to an
their advantages increases. Other niche products increase in interest in this sector, which is giving
rise to new start-ups; this, in turn, could make way
for ultra HNIs that are both young and tech savvy.
Most Popular Wearable Devices
For 81% of ultra HNIs, wearable devices serve
Smart watches are the rage; fitness bands are fast catching up
as additions to social status. For an equally high
proportion (73%), passion for these devices drives
68% their purchases.

32% 31% These hands-free devices are beginning to act as

virtual assistants to ultra HNIs and provide them
17% with customised recommendations – such as a
fitness band that prompts an optimal workout
regime allowing the users to set targets as per
their capability and stamina. At least 70% of ultra
Smart Watch Fitness Bands VR Headset Sleep
HNIs in our survey believe that the high degree of
Headphones
customisation offered by wearables has led to a
Source: Top of the Pyramid 2016, Kotak Wealth Management
marginal-to-positive change in their lifestyles.

32
 Spends

Hands-free
Reasons for Using Wearables wearable devices
are already
Most common reasons include social status and passion
acting like virtual
assistants to
ultra HNIs; their

81% 73%
Social Status Passion
45%
Health & Fitness
customised
recommendations
should lead to
higher adoption

36%
Personal Safety

33 %
Convenience

31%
Innovation

Source: Top of the Pyramid 2016, Kotak Wealth Management

Luxury wearable devices also provide options for edge technology. These devices enable contactless
personalisation such as name and date engravings. payments, gesture recognition, and remote access
Not surprisingly, a few luxury jewellery and watch to cars and homes.
brands have taken the concept of a wearable
device to a different level with the introduction The jet-set will increase their wearable-device
of ‘smart jewellery’ for the ultra-rich– diamond usage, as these gradually cater to every aspect of
studs and 18-carat gold, combined with cutting- their lifestyle.

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TOP OF THE PYRAMID 2016 | Kotak Wealth Management

PROFILE

Nagaraja
PRAKASAM

If the impact
is more with
low profit, it is
better to be
an NGO

M
r Nagaraja (Naga) is an angel investor, decided to take a break from a flourishing career
impact-investment specialist, and a and do something completely different. The seeds
member of the Indian Angel Network. of this ‘something different’ were sown almost
He spent 16 years (1996-2012) with CDC Software, 13 years ago; in 1999, he and his team had raised
most of it in the US, from where he left as money for a group called Association for India’s
President, South and Southeast Asia. In 2012, CDC Development, which was used to support NGOs
was sold to a private equity firm, and Mr Naga in India.

34
 Spends

He served as the group’s president for a while more time and effort, it has good potential. This
and spent time in India, particularly in India’s led to the launch of IAN Impact, which is focussed
villages when he realised that he fervently wanted solely on impact investments. Its first venture was
to contribute to the country’s social upliftment. GoCoop, India's first social marketplace to buy
However, it was not until 2012 that he could and source handmade apparel, home furnishings,
whole-heartedly pursue his heart’s desire. fabrics, and crafts directly from co-op weavers
and artisans.
From 2012, he has been a partner at Acumen
Fund, which invests patient capital in businesses Initially, only 40-50 IAN members supported the
whose products and services enable the poor to GoCoop concept, but ultimately all 350 came
transform their lives. This US-based company was on board, which eventually fuelled investments
started by entrepreneur and investor Jacqueline in Uniphore (company that allows software
Novogratz in 2001. Acumen has invested more to understand and respond to natural human
than US$88 million in 82 companies across Africa, speech in many languages), Saahas (organic
Latin America, and South Asia. Mr Naga joined waste management, collection and recycling of
Acumen with the idea of bringing in the efficiency packaging waste and e-waste), and Freshworld
of a corporate into the heart of an NGO. (a farm to home FnV using electric smartcards).

Besides Acumen, he is a part of the Indian In fact, Saahas, he recalls, was an NGO. It took
Angels Network, and the founder Chairman a push from Naga and his portfolio consultant
The challenge
of Native Angels Network, a board trustee company for Saahas to realise that it did not have is to get wealth
of Nativelead Foundation, a non-profit to remain an NGO – it could become a sustainable into the social
organisation promoting innovation-based New social enterprise rather than depend on donations ecosystem
Age entrepreneurship. He is also on the board of for growth – and perhaps make a bigger
several social-enterprise companies. difference to people’s lives.

In his career as an angel investor, he has invested All his investments are in the impact space right
in 18 startups in the impact investing space. His now in the `50 lakh to `6 crore bracket with the
investment philosophy rests on what he calls the average investment ‘sweet spot’ at `3 crore. He
3Ps – profit / planet / people. “As an investor, my calls this space “high risk and high return”.
main interest is profit. But as this is an impact
investment, there is a longer grace period – so this Naga has invested in 18 companies and is sitting
is called patient capital,” he says. on a 4X appreciation right now while some are
at 5X-13X return. 15 are doing well and 3 are not
Mr Naga was instrumental in making the Indian doing well. He reinvests his returns, he says. He
Angel Network look at companies other than IT believes that there is ‘political will involved’ in
for investments. As part of IAN, he urged fellow renewable energy in India and sees a bright future
investors to look at companies in the social space- for this sector.
he believed that even though this space requires

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36
 Spends

SPECIAL FOCUS

COLLECTIBLES
Defining the quest for luxury and power

n the past, maharajas, royal families, and landlords lived

opulent lives and loved to surround themselves with
beautiful objects – commonly called ‘collectibles’. These
collectibles were often their pride and joy and were
proudly displayed for their aesthetic and monetary value. These
collections have included vintage cars, gems and jewellery,
paintings and sculptures, and curios.

Snap to the present and the zest for collectibles is equally

visible in ultra-HNIs’ collections. Ultra HNIs have varied
tastes – from the quaintest of objects to the most stunning,
ostentatious jewels.

These collectibles not only define their quest for luxury and
power, but also their desire to be exclusive and distinct. This
section explores the drivers for collectibles, various categories
within this segment, and their purchasing trends.

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TOP OF THE PYRAMID 2016 | Kotak Wealth Management

Most Preferred Collectibles that Ultra HNIs Invest In

A Kolhapur- Our survey revealed that 65% ultra HNIs prefer depending on individual eclectic leanings. All
based ultra HNI's collecting electronic gadgets and about a third latest luxury / sports car models launched in
have developed this interest over the last one India – from coupes to caravans – are generally
enviable car fleet
year. Luxury cars account for 63% of ultra HNIs’ pre-booked, showing the passion that ultra HNIs
is maintained
collections, followed by investments made in art have for cars as collectibles.
by a team of and paintings.
mechanics daily Ultra HNIs that invest in art / paintings for their
In fact, collecting cars that are antique or collectibles tend to invest in the most expensive
fashionably modern is an established purchase paintings by world-renowned artists, making their
trend among this community over many years. homes veritable museums – almost an intimate
These car collections are extremely opulent, haven for art aficionados.

What Kind of Collectibles do Ultra HNIs Covet?

Most-owned are art and paintings, cars, and electronic gadgets

65%
63%
56%

40%
35%
30% 27% 21%

Electronic Luxury / Sports Art / Paintings Sports / Cruise Antiques Currency Other Stamps
Gadgets Cars Bikes Memorabilia

Source: Top of the Pyramid 2016, Kotak Wealth Management

38
 Spends

It is not just their homes that they adorn with

An ultra HNI we met is
these artifacts – they are very visible in their work
places too. Modern sculptures and contemporary
big into scripophily –
art is the latest flavour for the wealthy. Structures he collects antique stocks
and sculptures made out of waste and recycled and bonds. His collection
material are also becoming highly prized among
ultra HNIs.
totals more than
1,000 cancelled share and
The charm of letter writing is fading, but philately bond certificates
(stamp collecting, once perceived as a hobby that
kids indulge in) has now become an investment
mechanism for ultra HNIs. Many of them look at unheard of in India. Nevertheless, an ultra
stamps known for their antique value and history HNI from Delhi has several rare, characteristic
as an alternate investment avenue. specimens of many varieties, some of them going
back 200 years! He collects these carpets from
Collectibles are not always conventional. For around the world and exhibits them in metro
example, having a passion for carpets is fairly cities such as Delhi, Mumbai, and Bengaluru.

Sources of Purchases
Ultra HNIs do not leave any stone unturned Of course, technology is augmenting traditional
in their quest for collectibles that add to the physical purchases of collectibles; online
grandeur of their living rooms, office spaces, channels as a source of collectibles are evolving.
or atriums. These purchases are traditionally Our interactions revealed that 47% of ultra HNIs
known to require the collector visiting, examining, are considering online channels for their purchase
and then estimating the value of the article of collectibles.
being purchased.
While special shops and old markets of cities are
Even now, most collectibles are purchased through famous among ultra HNIs for their collectibles
physical channels (not online ones) with 63% shopping, the increasing interest and growing
through special stores or institutions. awareness of niche collections is also providing

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TOP OF THE PYRAMID 2016 | Kotak Wealth Management

From Where do Ultra HNIs Purchase their Collectibles?

While mall displays and special stores are high up in ranking, online is making rapid inroads

65% 47% 34%

14%
Mall Display Online Purchase Auction Collected by Self

63%
Special Stores / Institutions Museum
21% 8%
Passed on as Heirloom
Source: Top of the Pyramid 2016, Kotak Wealth Management

One of the opportunities for specialised outlets, mobile apps, opened an office in India recently and even
websites, and communities that are emerging and announced an exclusive preview of some
world’s oldest
shaping up the collectible marketplace in India. of its works that would subsequently go under
auction houses
the hammer.
recently opened Special institutions and communities provide
an office in India ultra HNIs the chance to pursue, purchase, and These auction houses do not just engage in vanilla
with a preview showcase their collectibles. auctioning of collectibles, but work towards
of some of its kindling the interest of the ultra-rich community
works for the For example, because of the interest displayed through educational events that keep them well-
by the Indian ultra HNI community, one of the informed on current trends and concerns in the
very wealthy
world’s most prominent and oldest auction houses global collectibles market.

40
 Spends

Key Drivers for Collectibles: Led by Passion

Passion is a major factor in pursuing
collectibles – 70% of the ultra HNIs that we What Drives Ultra HNIs’ Purchases of Collectibles?
interacted with confessed that their passion for Most are driven by passion and consider these status symbols
owning a collection of exotic and interesting
items drove their purchases. This passion has
made them take steps towards setting up
communities to promote art and to collect exotic Passion
70% Status
63% Tradition
items. For example, a prominent Mumbai-based
family has set up a foundation to promote art
and has opened up their entire collection to the
public. Not only this, they provide assistance in 28%
developing art galleries in the city. It would not be
long before they pursue professional courses to
take their interests to the next level. Investment

About 63% of the ultra HNIs we surveyed

consider it a matter of pride to own and display Networking 20% 20%
collectibles. Many prominent personalities have
long collected (sometimes for generations)
artifacts that represent India’s magnificent past
and its rich cultural heritage. In fact, for 28% of
Source: Top of the Pyramid 2016, Kotak Wealth Management
the ultra HNIs we talked to, traditional values
drive their purchases.
It is time that these collectibles – from exotic
A Mumbai-based family wine collections, to expensive paintings, to classic
has set up a foundation to cars – are looked at as ‘passion investments’.
Worldwide, wealth managers and consultants
promote art and has opened
track the value of these investments for their
up their entire collection to the
clients. Although these are not a prominent asset-
public apart from providing class in India yet, they are likely to become one,
assistance in developing art very soon. Rising interest in collectibles among
galleries in the city India’s ultra-rich could open up these passion
investments as a new asset class.

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TOP OF THE PYRAMID 2016 | Kotak Wealth Management

42
 Spends

SPECIAL FOCUS

SUCCESSION
PLANNING

c
Deciding the next in line
onflicts relating to succession are almost as old as
recorded history. Most famous Indian epics have
an undertone of problems related to, and the
importance of succession. Even as literature and
reality demonstrate how important this area is, Indian business
families have not really given this issue its due. Wealth can grow
manifold and be preserved for many generations if a well-
defined and well-thought-out succession plan is in place.

98%
Problems in succession planning take many forms – ‘The
Aurangzeb syndrome’ is a classic case of the potential heirs of
the family fighting over the succession of the family estate –
something that recurs fairly regularly in corporate India. All
too often, we also come across the ‘Dhritarashtra complex’
where the patriarch or matriarch has a clear preference for one

of Ultra HNIs believe family member, leading to problems among potential heirs. In
the past, we have seen cases where such a preference has even

in Succession Planning taken precedence over merit.

81% of them give it high importance As the concept of succession planning has moved far beyond
just dividing the gold amongst family members, and as
meritocracy plays a vital role in the right fit, finding the right
successor is becoming very important. In this section, we
explore recent trends and changes in succession planning
among India’s ultra HNIs.

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TOP OF THE PYRAMID 2016 | Kotak Wealth Management

Passing the Torch

As ultra HNIs move through various stages of immediate responsibilities. This translates
their life and build growth strategies to deal with into vision-building, better teamwork, and
the changing business environment, the issue effective performance — both for the successor
of succession becomes critical to ensure smooth and the business.
functioning of their businesses, and for the
financial security of their family members. Recently, a north-based industrialist went through
a feud over the family’s wealth and business due
Today, most ultra HNIs understand that to lack of a proper succession plan leading to
succession planning is a continuous and proactive misunderstandings between family members.
process, rather than a reactive one. Their plan Such episodes serve as a wake-up call for ultra
involves identifying potential leaders, grooming HNIs and push them into planning for succession
them, and encouraging them to look beyond their well in advance.

Motives of Succession Planning

Well-being of the family remains a major driving force

Ensure well-being of Ensure the well-being of

Contribute to growth and
immediate family other stakeholders
ringfencing family business
8%
35% Make family capable
and independent 15% Reduce family /
internal disputes

30%
Source: Top of the Pyramid 2016, Kotak Wealth Management
12%

44
 Spends

Methods of Succession Planning: Investing on the Future

With the changing education paradigm in
India, ultra HNIs are making way for the next Time for Succession Planning
generation in their enterprises quite early on.
Ultra HNIs take about five years to plan efficient succession
Successors are being inducted in businesses at
an early age; they are getting involved across
functions to understand nitty-gritties, and
to build relationships with key people in
43%
an organisation. 35%
22%
We have seen this in the past – successors joining
in as management trainees in prominent business
houses in India, receiving insight into functions,
and working their way to the top. This makes
the transition smooth for key parties involved –
employees, family members, investors, and
other stakeholders. 1-2 years 2-5 years Over 5 years
Source: Top of the Pyramid 2016, Kotak Wealth Management
During our interactions, we noticed that a few
ultra HNIs are even working on a blueprint to
get all stakeholders on board to understand the planning, including the type of business, size of
succession exercise. There are many factors that company, and existing leadership structure. These
affect ultra HNIs in the process of succession factors affect the organisation, as they influence
productivity, reputation, brand image, and
The son of a leading industrialist employee morale. Our survey revealed that 43%
of ultra HNIs prepare for at least five years to put
completed his technology
an efficient succession in place, while another 35%
management course from
take anywhere between two to five years.
a leading university in the
United States of America while Preparation for succession planning happens
undergoing hands-on training in majorly through a formal education – seen in 45%
their organisation of ultra HNIs. For 22%, strategic involvement in
business decisions serves as a means for grooming

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TOP OF THE PYRAMID 2016 | Kotak Wealth Management

How do Ultra HNIs Groom Potential Successors?

Educating and strategic involvement in business decision are the most prevalent methods

3%
Informal
Mentoring 45%
Education

Documentation
6% 24%
On-ground
of best practices
Mentoring

22 %
Strategic Involvement

Source: Top of the Pyramid 2016, Kotak Wealth Management

the next generation. Other ways include – These programs help participants understand
demonstration, exposure to business scenarios, their businesses better, prepare them to sustain
and formal and informal mentoring. through phases of transition, and enable them
to grow their businesses in an environment of
Leading universities in India and abroad have increased competition.
In ‘successor started offering entrepreneurship and family-
induction’ business-management programs and a growing Importantly, these programs benefit not just
they join in as number of ultra HNIs send their children and the participating students, but also their family
family members to these programs. For example, businesses. This is because through these
management
the son of a top industrialist completed his students, other members of the family are able to
trainees and
technology-management course from a leading learn and understand from each other, thereby
work their way university abroad while undergoing hands-on enabling continued success and reducing conflicts
to the top training within their company. in a family-managed business.

46
 Spends

Identifying the Right Candidate

Traditionally, succession planning among ultra
Daughters are becoming
HNIs largely meant dividing assets among the next
generation, but it is not that simple any more. The
an integral part of succession
phrase is gaining a wider role and significance in planning. The daughter of a
the current scenario. To find suitable successors, leading industrialist recently
ultra HNIs are making concerted efforts with
played an active role in business
sophisticated methods and strategy. They are
devising elaborate models to sharpen their expansion through acquisition
succession and development practices. and has also led the company’s
foray into new sectors
Broadly, there are two approaches for succession
planning – one, where ultra HNIs look at members before drafting a succession-planning
harmonising expectations with the family blueprint; two is more about dividing the empire.

The Pool of Potential Successors

Ultra HNIs often choose children and ‘high-potential’ family members

54%
39%

4% 1%
2%

Kids High-potential High-potential Non-immediate Friends

family members external candidate family

Source: Top of the Pyramid 2016, Kotak Wealth Management

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TOP OF THE PYRAMID 2016 | Kotak Wealth Management

The first approach, while superior, is a difficult are training their daughters and handing them
one due to the struggle involved in bringing crucial roles. For instance, the daughter of a
all stakeholders on board; however, if successful, it leading industrialist played a very active role in
leads to finding wider acceptance, an business expansion through acquisitions, and also
undivided group with higher resources, a bigger in her company’s foray into new sectors. Another
balance sheet, and eventually, a bigger impact on example is one of India’s richest families involving
the marketplace. their daughter in the telecom business.

For instance, an infrastructure heavyweight With changing times, business families are
recently took this approach to establish a ‘family becoming keener on finding the right person for
constitution’, and to make each member of the the top job. This would mean opening up to the
family understand relationships within the group. idea of finding this person even outside the
He hopes that these moves will eventually lead to family – someone with professional skills and
effective succession. necessary education.

Succession planning is becoming increasingly Although currently, successors from non-

gender agnostic – a major shift among ultra HNIs immediate family and professionals are less than
is that they are trying to include their daughters 10%, the trend is likely to pick up. Recently, one
in their succession discussions. Previously largely of India's leading consumer-goods companies with
ignored, daughters are now seen taking on a long family history appointed an outsider to
active roles in their family businesses. Ultra HNIs lead the group.

Finding the right person for the job, even an outsider

with professional skills and necessary education, is
taking precedence over keeping control within the family

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 Spends

Implementation of Succession Planning

Assessment is a key practice in effective succession
How Ultra HNIs Plan their Succession
planning. There is no widely accepted formula
Most prefer planning for succession themselves
for evaluating the future potential of leaders,
but there are many tools and approaches
that continue to be used today, ranging from
personality and cognitive testing to team-based
interviewing and simulations. 27%
Involve
External Agency

Mode for Succession Planning 73

Close Confidants
%

Wills are the most common instrument

Source: Top of the Pyramid 2016, Kotak Wealth Management

82% Will In our survey, 73% ultra HNIs said that they prefer
planning their succession with close confidants.

18% Private Family Trust Others look for advice from external sources
such as chartered accountants, consultants, and
wealth managers. People are also gradually
relying on professional estate planners, trustees,
and wealth advisors.

In a country where discussion of death was

virtually unheard of, Indians have now started
writing wills. The well-heeled, especially the new
ultra HNIs, have become savvier about preparing
for the inevitable – and their favourite instrument
of choice for bequeathing their riches has turned
out to be the simple will. Trusts are now gaining
traction with many large corporate houses going
Source: Top of the Pyramid 2016, Kotak Wealth Management
down this road.

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TOP OF THE PYRAMID 2016 | Kotak Wealth Management

Early Planning = Early Retirements

Counterintuitive as it may sound, Indian to put in place succession planning for top
ultra HNI families are involving younger members management and board positions – in line
of their family right at the onset of succession- with best global practices. With the regulator
planning discussions. taking a keen interest in succession planning,
global best practices in this segment will soon be
The younger lot is more educated and open to adopted in India.
ideas and concepts. Our survey disclosed that
70% of the ultra HNIs have commenced planning Succession planning is not just being treated as
of succession at least two years ago, while 62% an insurance policy for ultra HNI families focusing
of them revisit it at least once in five years with on the continuity of their business – it is slowly
the aim of incorporating the latest changes in turning out to be a retirement plan for them.
the family. As SEBI ushers in a new regime of Today, they are not waiting to turn 60 before
corporate governance, it has asked companies they retire. In the past decade, we have seen a

How Long Ago did they Initiate Succession Planning?

Many ultra HNIs have initiated planning for succession

25 %
24 %
10 years
ago
5% Will start
later
Will start now 10%
17%
2 years ago
19%
5-10 years ago
2-5 years ago

Source: Top of the Pyramid 2016, Kotak Wealth Management

50
 Spends

How Often do they Revisit their Succession Planning?

Most ultra HNIs visit their succession planning at least once in five years

16 %
5 years 38%
Never

19 %
1 year

27 %
3 years

Source: Top of the Pyramid 2016, Kotak Wealth Management

number of ultra HNIs retiring early and choosing and insurance schemes to secure the future for
alternate paths for their future. Most of them themselves and their families.
are working on succession and retirement plans
simultaneously. They are keen to ensure that their Many are seen working even after retirement,
life after retirement is not dependent on others. and in some cases, their risk appetite and business
They are opting for various post-retirement funds sectors undergo a change. Take for instance
an ex-head of India’s top conglomerate – after
retirement, he has invested his personal savings in
With a focus on corporate ecommerce start-ups.
governance, SEBI has
taken an interest in making Some ultra HNIs prefer to enjoy the post-
retirement phase in pursuing their hobbies
companies have succession
and passions – for example, an ex-banker from
planning in place for Kolkata turned to freelance photography and
top roles has exhibited his works at various national and
international forums!

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PROFILE

Shaheen
MISTRI
Education is a
long, hard, and
human process
and it’s really
important that
we give kids the
opportunity and
time to be able
to meet their
potential

M
s Mistri is a well-known social activist, maximise their potential and transform their lives.
educator, founder of the Akanksha Currently, it reaches out to over 5,000 children
Foundation, and CEO of Teach For India. through two models: the after-school model (where
Her dedication to her cause is awe-inspiring and centres support each child by providing a strong
she strongly believes that quality education is the educational foundation, help them have a good
only way forward for a better tomorrow for India’s time, inculcate self-esteem and values, and assist in
underprivileged children. planning for a steady-income livelihood) and the
‘school project’ model (opening high-quality schools
Akanksha is a non-profit organisation, which for under-privileged children in partnership with
provides children from low-income communities local municipalities).
with a high-quality education, enabling them to

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 Spends

Just seeing our children grow and change, and then going out
there and wanting to change the society – that to me is really
where the power of the movement is. Our children as young as
5th, 6th, and 7th graders say that I will change my community –
this is just incredibly fulfilling.

Growing up, Ms Mistri went to 10 different schools children in its first year to 38,000 children today. In
in five countries. This kind of exposure perhaps terms of employees, Akanksha has 200 and Teach
gave her a very early insight into exactly what she For India has 250 and growing. Teach For India is
wanted to do with her life. Even as a young child present in seven cities (Mumbai, Pune, Bengaluru,
of 12, Ms Mistri spent her summers volunteering Delhi, Chennai, Ahmedabad, and Hyderabad). Our goal is to
with disadvantaged children. As a teenager, she Akanksha has eight centres and 16 schools in reach a million
was already looking for volunteering opportunities Mumbai and Pune – the organisation celebrates 25 children in five
to work with children. When she visited her years of existence this year. years, which
grandparents in Mumbai, she was appalled by the
is a massive
sharp contrast in the living conditions of the rich Besides working for children, Ms Mistri says she
jump, but we
and poor in the city – and decided to do something is ‘obsessed’ with animals, especially stray ones.
about it. The best way to bridge this gap was to She is also very passionate about creativity and
do not want to
educate children, she decided. In her own words, art – from film to music to fine arts to painting. She compromise the
“My first organisation Akanksha started as a college loves travelling and is an author. “I have written a quality of what
project and a belief that education is important, book for Teach For India last year called ‘Redrawing we give our
kids are important, and because I just enjoyed being India’ and published a couple of children stories children in that
with kids. Slowly, a community and classrooms with about a little crocodile called Miss Muglee, which
process
disadvantaged children grew around me.” were illustrated by Akanksha kids,” she says with an
indulgent smile.
In 2007, Ms Mistri met Wendy Kopp, the Founder of
Teach for America, and was inspired to start a similar While Akanksha is not an impact investment,
initiative in India under the ‘leadership at the core Ms Mistri has valuable words of wisdom for the
of the solution’ model. Her Teach For India initiative, education sector. “Organizations becoming more
which she began after Akanksha had already professional and being able to tell their story and
flourished for almost 17 years, was a result of her operate at a scale – this is a big opportunity, as it
desire to scale Akanksha’s model. resonates with what investors want,” she
concludes. In this sector, making an investor or
Teach For India's mission statement is that every donor a partner in the larger vision and giving
child deserves to attain an excellent education. It's them an opportunity to actually engage is a great
aim is to prove that no child’s demographics should idea, she says and adds that 2% CSR is a really good
determine their future. It has grown from 2,000 opportunity for the sector.

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 Spends

SPECIAL FOCUS

RENEWABLE
ENERGY
Committed to a greener lifestyle

or more than four decades, renewable energy has

been an important component of India’s energy
planning process. Social and economic growth are
top-priority for the government, and it is increasingly seen
using renewable energy to drive this agenda.

Ultra HNIs have always been enthusiastic about adopting and

promoting renewable energy. Their various initiatives have made
them frontrunners in adopting renewable-energy technology;
many have effectively integrated renewable energy into their
lifestyle and businesses. Popular programmes include water and
energy conservation, recycling and reusing plastic bags, and
waste segregation.

Energy efficiency has been included

as one of the eight missions in
the Prime Minister’s
National Action Plan on climate

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TOP OF THE PYRAMID 2016 | Kotak Wealth Management

The Importance of Renewable Energy

Two renowned Ultra HNIs have a positive view on moving towards lights, water-conserving fixtures and fittings,
ultra HNIs the usage of renewable energy, both inside and rainwater-harvesting technology, and external

adopted a outside their businesses. Most of them strongly solar lighting.

believe in an eco-friendly lifestyle and strive to
tribal village in
reuse resources, to plant trees, and to use Ultra HNIs have long realised the importance and
Odisha; they electric / alternate fuel cars. They also often assist relevance of renewable energy as a sustainable
installed solar in preserving non-renewable energy sources for option to cater to rising energy demands. They
units with two emergencies / better uses. majorly focus on initiatives such as preserving
home-lighting and maintaining non-renewable energy sources,
systems in Socially conscious and environment-friendly ultra reducing and controlling pollution, and improving

each of the 61 HNIs are increasingly adopting ‘green’ building the environment.
practices to minimise the footprint of their homes
households
on the ecology, while maximising comfort. Beyond They are also increasingly tying up with
there the latest luxury bathroom fittings, marble floor commercial and residential high-rises to install
tiles, and technology time-savers, the wealthy are solar panels on rooftops, thus encouraging the
also investing in insulated roofs, automated sensor usage of alternate sources of energy. This has not
only turned into a viable business model for ultra
HNIs, but has also made the ‘go green’ lifestyle a
How Many Ultra HNIs Believe in Renewable Energy?
coveted and fashionable one.
90% agree that this is important for sustainable development

A few examples – a Pune-based ultra HNI family

Agree is marketing a line of highly energy-efficient
pumps, while a leading developer in Gurgaon is
focused on making energy-efficient buildings by

Strongly
55% Somewhat
using wood instead of aluminium for doors and
windows that reduce CO2 emissions.
Agree Agree

35% 8% Energy efficiency is being recognised as a

‘low-hanging fruit’ in the country’s pursuit of
2% Neutral energy security, inclusive development, and
transition to a low-carbon economy. To fulfil
this, ultra HNIs are investing in employee-
Source: Top of the Pyramid 2016, Kotak Wealth Management
focused activities, such as campaigns to increase

56
 Spends

Types of Renewable Energy Investments by Ultra HNIs

60% would like to be or are already engaged in initiatives such as solar power, bio-energy, and wind

15%
30%
25%
17%
Solar Energy Heat Pump
53% 60% 12%
23% 18%
Bio Energy
26%
Wind Power
51% 70%

Direct Investment Impact Investment Evaluating

Source: Top of the Pyramid 2016, Kotak Wealth Management

awareness, motivation, and involvement in energy-efficiency impact. Many of them have

energy-management activities – with an moved towards making office buildings energy
ultimate aim of reducing the company’s efficient and retrofitting business processes. State
energy costs. governments and mobile-app companies are
coming up with car-pooling features, which are
Major states in the country have recognised the backed by ultra HNIs implementing similar systems
need for renewable energy and have set-up in their offices.
large solar parks. Punjab, for instance, has setup
the world’s largest single-roof-top solar plant An ultra HNI, who recently completed the
at a cost of `140 crores. Ultra HNIs find such construction of his independent bungalow along
projects good avenues to increase their exposure the East Coast Road in Chennai has installed
to renewable energy and usually form groups to features such as insulated roofs and walls to
invest in such initiatives. reduce heat ingress, automated sensor lights,
water-conserving fixtures and fittings,
They are also implementing operational and rainwater harvesting technology, and external
maintenance practices that take into account the solar lighting.

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TOP OF THE PYRAMID 2016 | Kotak Wealth Management

Investment in Renewable Energy: Trailing Growth

On an average, ultra HNIs invest `15 lakh on solar Ultra HNIs are also giving up their rooftops to
energy per year; their bio-energy investments are install solar power systems. This model is being
a close second at `12 lakh. These investments are used by many solar power companies to increase
primarily towards solar rooftops and boilers and their rooftop installation capacities. Industrial
wind-driven machineries. establishments, commercial buildings, malls,
and large gated communities are key targets for
Drivers for Investments in Renewable Energy such installations.

Main reasons include upcoming sector, energy preservation,

The government provides several benefits for
stability of returns, and sector growth
investments in renewable energy – it permits
100% Foreign Direct Investment in the sector and
14% 27%
15% 18% allows a tax holiday for 10 years for generation
and / or distribution of power from renewable
34% 28%
energy plants – this has attracted many ultra-HNI
31% investors to the sector.

Upcoming Sector Energy Preservation Specialised financing agencies are also promoting
29%
renewable energy projects, while the government
15% provides operating subsidies, accelerated
23%
Level/Stability of Returns
15% A leading FMCG company
15% 13%
20% has tied up with a
3% Jabalpur-based cement
tycoon for burning its
Impact on Local Communities

Philanthropy
solid waste in the kilns
Rank 1 Rank 2 Rank 3 of his cement plant to
Source: Top of the Pyramid 2016, Kotak Wealth Management
generate energy

58
 Spends

depreciation, and generation-based incentives multiple opportunities for ultra HNIs to contribute One of
(GBI). These incentives have been one of the most to this ‘green cause’ while also making it a viable India’s largest
critical factors in driving investments, especially business model.
automobile
into sectors such as solar and wind power.
companies
In January 2016, Indian Renewable Energy
States, such as Punjab, have inked MoUs worth Development Agency Limited (IREDA) came out
has installed
`13,500 crore for investment in solar projects and with tax-free secured redeemable non-convertible ‘energy saver’
signed pacts for setting up bio-ethanol plants bonds. Ultra-HNI buyers displayed massive interest units along
worth `6,000 crore. This trend is spreading to and the issue was over-subscribed to almost with ‘feeder
other states such as Gujarat, thus providing double the allocated value. pillars’ to reduce
its energy
consumption

High Earnings: Renewable Energy is the Next Big Thing

As India’s renewable energy sector marches from Exciting business models are sprouting in this field
the fringes to the mainstream, ultra HNIs are spoilt as the market potential grows with enough room
for choice by the numerous opportunities that it for established inheritors and fresh entrepreneurs.
presents, all of which will multiply their wealth For example, a Delhi-based organisation started by
and benefit the environment. two young ultra HNIs is providing solar-powered
water-pumping solutions to meet agricultural
Besides renewable energy as an investment irrigation, aeration, fisheries, and drinking-water
and business opportunity, ultra HNIs are needs in off-grid areas.
avid followers of cost-effective technological
innovations and often actively collaborate with In five years, they have expanded to 14 states, have
academic institutes that specialise in these types 2,200 projects on the ground, and are generating
of advancements. revenue in millions each year already.

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TOP OF THE PYRAMID 2016 | Kotak Wealth Management

PROFILE

Vinod
KENI

As there are
more success
stories in impact
investing, its
familiarity
among the
investment
community will
grow

M
r Vinod Keni is the co-founder and when he was introduced to this space and soon
partner at Peachtree Management joined a firm that was looking at a new fund in
Advisors. He is also on the board of this segment, which eventually ended up raising
Indian Angel Network. He is a man who wears US$ 100 million. After this, Mr Keni started
many hats (impact investor, angel investor, and looking at impact investing mostly from an angel-
management consultant). Surprisingly, he says investing perspective because he realised it was
his journey into impact investing wasn't planned. not just about raising capital, but more about
He was working for a large donor institution the expertise provided to the entrepreneur and

60
 Spends

the management team to build a sustainable he puts it “You need to pick it up carefully – is
enterprise. it solving a larger problem or need? Something
that people really want? Then the next question
Impact investing is challenging. “You look is if this is practical and commercially viable? Is it
for enterprises that you think are going to be sustainable?” He admits to shelving many ventures
sustainable, the attraction for mainstream because they qualified mainly as philanthropic. He
professionals to join in is limited because of the is not overtly optimistic about renewable energy in
longer gestation period, and it takes a much India – “It will take some time, it still has significant
The number of
longer time to scale these companies up,” he lists. challenges in terms of scaling up.”
The capital that comes into impact investing is a
companies that
more ‘patient capital’. “You cannot come into it He believes that impact investing funds should would fail will
and exit in two years.” This is where experience have returns of high 20s to mid-30s in four years be high and even
and expertise comes in, he believes. (minimum holding period), but there are instances the money lost
where he has landed up with high teens or even in this sector will
“Earlier, we saw many people who had passion single digits. As he puts it succinctly, “This is like
be considerable,
and who wanted to make a difference, but now any other venture fund – one can have a few
but these are just
we are seeing people with passion plus experience ducks, a few singles, and a few home-runs.”
to back that up.” Experience and expertise makes
cycles before the
all the difference according to Mr Keni. “Today, Mr Keni believes that these segments – sector matures,
you are seeing a class of entrepreneurs who are employability and skilling, financial inclusion, and consolidates;
more sophisticated and experienced – it is a big healthcare, sanitation, water, low-cost medical eventually, the
boon. You now see experienced professionals who devices, energy – that are leveraging technologies number of failures
are stepping in and saying that there is a large for people at the bottom of the pyramid, are likely
will decrease
enough need and I know it’s a business that I can to attract maximum impact investment. In fact,
make sustainable.” Budding entrepreneurs and his preferred sectors for investing are fintech and
experienced ones are now actually able to financial inclusion.
choose between creating another e-commerce
company, or an on-demand delivery company, or Mr Keni’s other interests include collecting
a social enterprise. antique toy trains, travelling, and reading. He
likes travelling to offbeat locations and plans to
Social investing is still a fiercely debated concept, go to Ushuaia, Argentina, for his next big holiday.
he reveals. He says he has had mainstream A large chunk of his investments are in equity
investors tell him that all investing is eventually currently, but he plans to shift more towards debt
impact investing. What he is very clear about is as the years go by. His real estate investments are
the difference between impact investing and likely to remain steady.
philanthropy; in the former commercial returns
are very important, in fact, they are a priority
– only then does he consider if the venture will
make an impact. It seems to be a fine balance – as

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TOP OF THE PYRAMID 2016 | Kotak Wealth Management

62
 Investments

HOW THE ULTRA HNIs

INVEST
ADVANTAGE
REAL ESTATE
Less inclined towards equity

O
ver the last few years, the government has liberalised
foreign investment policies and created a very
favourable investment environment across all segments
of India’s economy. Both manufacturing and services
have received a boost under the initiatives 'Make in India', 'Start
Up India', and 'Digital India'.

In the past year, sentiment towards the government’s

performance and policies has continued to be positive.
Actions such as RBI reducing interest rates, listing of smart cities,
and clearing several road projects have strengthened ultra-HNI
investments in the domestic market.

The investment mood has remained positive. While ultra HNIs

have been less inclined towards equity this year due to the
lacklustre market performance, they have increased allocation to
other segments such as real-estate, especially commercial, and
debt. They expect the investment climate to remain bullish on
strong economic growth.

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TOP OF THE PYRAMID 2016 | Kotak Wealth Management

Primary Business Remains Main Source of Wealth

Our survey revealed that this year the main source
Wealth Sources of Ultra HNIs Across Categories
of wealth for almost half of India’s ultra HNIs is
Except for professionals, the primary business is the main source
the success of the primary business; last year, this
figure was 41%.

57% 17%
29% There was also a corresponding decrease
9% 14%
in the number of ultra HNIs whose primary
5% source of wealth is through sale of business. In
conjunction, these trends indicate that they are
14% 3% 42%
10 % more interested in building long and sustainable
Entrepreneur Professional
businesses.

A quarter of the ultra HNIs we polled have

48% created wealth from the real-estate sector, while
41% 39% for others the primary wealth source is personal

10% 25% income and equity investments.

8% Entrepreneurs and professionals predominantly

have a single source of wealth. However,
Inheritor 1%
9% Overall inheritors tend to diversify from their established
businesses, which has led to wealth augmentation
3% from real estate for them.
16%
Equity, ESOP
A new category of entrepreneurs are also
Sale of Business Success in Business
successfully investing in social entrepreneurship
Real Estate Personal Income businesses that focus on sustenance. Due to their
passion and vigour, the ‘impact investing’ segment
Source: Top of the Pyramid 2016, Kotak Wealth Management
is rapidly gaining ground in India.

64
 Investments

Real Estate and Debt Investments see an Increase

Indian ultra HNIs broadly invest across equity, real asset classes – real estate, debt, and alternate
estate, fixed income, and alternative investment assets – lending stability to returns. In the debt
assets. This year, the trend of increasing equity market, tax-free bond issuances by public-sector
portions in ultra HNIs’ investment portfolio saw a undertakings elicited a positive response from
reversal mainly due to the near 20% fall in Indian ultra-HNI investors.
equities. Small-cap stocks, which were among
the top picks and performers in the previous two Real estate investments, which fell last year,
years, took a hit this year. saw an increase this time. The Real Estate
(Regulation and Development) Bill of 2015,
The stock markets dipped due to a variety of which came into force this year, is widely
reasons including global events such as a sharp expected to ease concerns around project
fall in the Chinese stock markets in just three development and delivery and bring about
months, and a drop in foreign inflows into Indian transparency and accountability.
stocks. While increasing participation of domestic
institutions countered the fall to an extent, the Commercial properties are the biggest and most-
stock markets still saw a negative trend. stable attraction in the real-estate market for ultra
HNIs, as they are proving to be more profitable
Realignment in the equity portfolio of ultra HNIs than residential ones. Cities such as Mumbai,
led to a corresponding rise in the other three Bengaluru, Hyderabad, and Delhi NCR are

Certain series of tax-free bonds issued in

FY16 such as from HUDCO, NHAI, and NABARD
offered a yield of 7.00-7.04%, which translates into a
pre-tax yield of 10.5%

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Ultra HNI Investments Across Asset Classes

Equity allocation decreased, alternate investments rising

FY 2016 FY 2015 FY 2014

39% 22% 45% 20% 38% 24%

11 % 28% 9% 26% 9% 29%

FY 2013 FY 2012 FY 2011

34% 29% 34% 20%

35% 32%
4% 29% 7% 30% 9% 37%

Equity Debt Real Estate Alternate

Investments
Source: Top of the Pyramid 2016, Kotak Wealth Management

the hubs for commercial properties, with major Commodity investments are also gaining the
domestic corporate offices and multinational confidence of the ultra-HNI community. Impact
companies opening their branches there. The investments (as part of alternate investments)
residential segment is also expected to pick up but have also captured their imagination. With
with a lag as the demand in small centres picks up strong economic growth expected in India
on increased interest from ultra HNIs. over the next few years, the investment mood
continues to be bullish.

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 Investments

COMMODITIES
Most ultra HNIs invest in commodities, gold is a favourite

ommodities are among the world’s Government of India

largest financial markets. Initially
started Gold Monetisation
conceived as a hedging platform for
Scheme under which
producers and consumers in local
markets, these markets now provide sophisticated resident Indians can deposit gold
investment and risk-management opportunities and receive gold bonds. This
for ultra HNIs. Globally too, commodities such scheme has piqued the interest
as oil and gold have become favourites amongst of ultra HNIs
institutional investors.

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Exposure to Commodities
Of the five BRICS economies, four slowed or prices, Indian ultra HNIs are using the
even contracted in 2015. China’s economy commodity markets to limit their exposure, and
continued to slow down and its move away from also to make gains.
commodity-intensive activities weighed on global
trade and commodity prices. Our survey revealed that 72% ultra HNIs invest
in commodities; of these, 40% have invested
Brazil and Russia, two large commodity exporters, about 5-10% of their assets while 39% have
are in deep contraction that is also accompanied 11-20% exposure. The commodity markets in
by currency depreciation, above-target inflation, India are growing, which means their potential is
and deteriorating public finances. In order to huge, particularly because commodities are very
counter this volatility in raw material input relevant to India’s economic growth.

How Much do Ultra HNIs Invest in Commodities?

49% of ultra HNIs invest more than 10% of their assets

11% 20% 10%

Less than
5%
40 % 11%- 15 %
19% More than
20 %
5% -10% 16%- 20 %
Source: Top of the Pyramid 2016, Kotak Wealth Management

68
 Investments

Allocation of Investment in Commodities

According to our survey, 78% ultra HNIs latest additions to this list. Apart from gold, 19%
prefer gold and silver for their commodity ultra HNIs allocate funds to silver and 6% invest in
investments; out of these, 59% consider gold a energy commodities, which is the next emerging
good investment opportunity, also because it is sector globally. In line with this global trend,
traditionally regarded as auspicious. commodity exchanges in India are also offering
energy products as a trading opportunity to
Investment in gold varies – from jewellery, coins, which the ultra HNIs are warming up and taking
bars, to ETFs. Gold certificates and bonds are the restricted exposure.

Investment Allocation by Commodity

Gold and silver command large chunks at 59% and 19%

59 % 19 % 6 %

Silver Energy
Gold

4 % 3% 9 %
Agri Based Metals Others

Source: Top of the Pyramid 2016, Kotak Wealth Management

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Sources of Commodity Purchases

To attain better returns from commodity when it comes to energy-based commodities,
markets when multiple avenues are available more than half invest directly through exchanges,
for purchasing them, ultra HNIs are taking more online portals, and brokers.
informed decisions about performance and
investments. The introduction and evolution of For agri-based commodities, 48% ultra HNIs
a strong regulatory oversight and framework in prefer instruments that have an underlying
commodities has provided a fillip to the sector and commodity as the driver while 39% prefer direct
boosted ultra HNI confidence levels. investments through exchanges; the latter ratio
is lower than the former because of the relatively
Physical buying is the preferred purchasing lower trading volume of exchange-traded agri
method for 80% ultra HNIs investing in gold and commodities and trading restrictions often
for 74% of those investing in silver. However, imposed to curb price inflation.

Where do Ultra HNIs Purchase their Commodities?

More physical buying in gold and silver; energy investments are mainly through exchanges

80% 13% 7% 23% 53% 24% 13% 39% 48%

74% 11% 15%
24% 38% 38%

Gold Energy Agri Based

Silver Metals

Physical Buying Direct Investment through Exchange / Portal / Brokers Commodity Stocks

Source: Top of the Pyramid 2016, Kotak Wealth Management

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 Investments

Future Investments: Commodities

With the merger of FMC (Forward Markets
Commission) with SEBI (Securities and Exchange
Preferred Commodities for Future Investments
Board of India), the future of Indian commodity
Precious metals, for both current and future investments
markets is likely to be bright in terms of both
investments and returns.

SEBI has initiated a number of measures to Gold 34%

streamline the regulatory structure and processes
in these markets, all of which are towards
increasing market integrity and liquidity, Silver 25%
thus helping the growth of the commodity
derivatives market.
Energy (Crude Oil) 12%
As the number of commodities traded is
increasing, ultra HNIs are diversifying their
Agri Based
investment risk by participating in different Commodities 12%
segments. This is an evergreen market, as it (Soya, Cotton, Jute, etc)

involves trading of products that are as varying as

precious metals and agri products. Metals 9%
(Nickle, Lead,
Copper, etc)
In our survey, 34% ultra HNIs believed gold is a
good investment opportunity for the future too, Others 8%
while 25% picked silver.
Source: Top of the Pyramid 2016, Kotak Wealth Management

Energy-based commodities (such as crude oil)

and agri-based commodities (such as soya, from foreign investors, once permitted, will also
cotton) were preferred by 12% ultra HNIs each. boost market liquidity. With India set to become
Introducing index derivatives and commodity one of the fastest-growing economies, ultra HNIs
options would be a great step towards will continue to view commodities as a good
broadening the market. Potential participation investment opportunity.

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72
 Investments

IMPACT
INVESTMENT
The Fortune at the Bottom of the Pyramid

he ultra-rich have almost always been great

philanthropists. Their desire to share their bounty and to
do good for the greater society is ingrained and deep-
rooted. However, for the last few years, mere charity has
not been enough to satisfy their altruistic propensities.

They want to build enterprises that not only create a positive

difference in society, but ones that are self-sufficient,
economically viable, and lasting; essentially, sustainable social
enterprises. This is the cornerstone of impact investing, which is
a growing trend among the elite.

Through impact investing, ultra HNIs derive twin benefits – one,

investing in ventures that provide good returns (albeit over a
longer timeframe) and two, the satisfaction of having created
enterprises that will make a lasting social difference, a feeling
that is hard to put a price tag on. This section explores the
trends in ultra-HNI impact investments.

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TOP OF THE PYRAMID 2016 | Kotak Wealth Management

Almost Half are into Impact Investing

Impact The impact investments segment, almost unheard have exposure to these investments. This could be
of until a few years ago, is receiving close scrutiny primarily because of their experience working in
investments is at
of late. It seems to have become very popular or being associated with some of these sectors.
a nascent stage
among ultra HNIs; nearly half of the ones we
in India and surveyed had some exposure to this novel Among inheritors, 50% said they have an
is seeing fast- investment arena. exposure to impact sectors, mainly as a
paced growth diversification avenue from their core businesses
due to interest This segment not only satisfies the ultra HNI’s that also gives them high returns.
from ultra HNIs quest for new niche avenues for investment, but
also delivers the satisfaction of wealth creation Among entrepreneurs, only 37% had an exposure;
while making a progressive difference to society. they said it was difficult because these kinds of
Though the sector is at a nascent stage in India, investments might require their involvement (in
it has seen fast-paced growth over the last few addition to capital), which proves cumbersome.
years. While the general interest for impact However, established entrepreneurs are likely to
investments is high, professionals seem to have show inclination towards such investments, our
the highest inclination, with 67% saying they survey revealed.

Nearly Half of Ultra HNIs have Exposure to Impact Investments

More professionals tend to have exposure to these investments

37% 50% 67% 44%

Entrepreneur Inheritor Professional Overall

Source: Top of the Pyramid 2016, Kotak Wealth Management

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 Investments

Sectors in Impact Investment

Impact investments target companies catering Our interactions revealed that most ultra
to basic needs in an effective way, which would HNIs that already have an exposure to impact
otherwise have remained unfulfilled. investments end up increasing their exposure.
Typical investments in this segment were
We saw in our survey that most ultra HNIs are below `50 lakh for financial services and clean
inclined towards three main sectors within impact energy, but up to `1 crore for
investing – financial services, clean energy, and affordable housing.
affordable housing. This preference also translates
into on-ground investments, with microfinance in
financial services being the hottest sector within Sector-Wise Preference for Impact Investments
impact investing. Financial services, clean energy, and affordable housing are favoured

Successful exits in microfinance coupled with 85%

Financial Services
good returns have added to the sector’s allure.
The Reserve Bank of India’s recent mandate to
a few microfinance institutions to set up ‘small- Clean Energy 82%
finance banks’ has translated into renewed vigour
and interest in the sector with prominent Indian
family-owned companies actively investing in the
Affordable Housing / Sanitation 82%
sector. Additionally, as seen in the lifestyle section,
the interest of ultra HNIs in clean energy reflects Affordable Health 64 %
in their investment preferences – this is also
among the top sectors for impact investments.
Affordable Education
Sector
49 %

RBI’s recent mandate to Rural Supply Chain 49 %

set up ‘small finance banks’
has translated Technology Services
47%
targeting BoP Space
into renewed vigour and
interest in the sector Source: Top of the Pyramid 2016, Kotak Wealth Management

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TOP OF THE PYRAMID 2016 | Kotak Wealth Management

Drivers of Impact Investments

Major Capital pumped into ventures that created a nature and relatively small size (of the investee
social change or into social entrepreneurship companies), efficient use of capital and efficiency
considerations
ventures was once considered ‘not-for-profit’; of the investee company is becoming a major
for impact
however, this view is gradually changing. The consideration. Due to the level of interest from
investments impact investments space is receiving traction ultra HNIs in this segment, wealth managers have
included from the ultra-rich in recent times – key drivers started incorporating impact investment in their
efficient use for this are attractiveness of the sector and suite of products.
of capital and stability of returns. Other drivers include the
efficiency of the social and environmental impact that these The policy push from the government in terms
investments create. While impact investments are of National Solar Mission (to promote solar
company
expected to provide stable earnings, they typically energy) and ‘Housing for all by 2022’ (to provide
have higher gestation periods and are turning affordable housing) are also likely to have a
out to be medium to long-term investment positive bearing on the interest levels of ultra HNIs
avenues for ultra HNIs. Given their prolonged in this space.

Key Drivers for Impact Investments

The ultra-rich mainly look at sector attractiveness and stability of returns

13% 21%

31% 23%
16% 16%
Sector Attractiveness
Stability of Return 34% 27%
6% 13%
Social Impact
Energy Preservation

Environmental Impact
First Sector Preference Second Sector Preference
Source: Top of the Pyramid 2016, Kotak Wealth Management

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 Investments

Investment Modes
Impact investments predominantly happen
through three key routes – private equity, venture Impact Investment Channels
capital, and hedge funds. Our survey showed Private equity is the most common mode
that 54% of ultra HNIs preferred the private-
equity route for making impact investments
(an established mode), while 32% preferred the
venture capital route for making bets on new
initiatives. 54%
Interestingly, they favoured the private-equity
route for investments in financial services and
clean energy (where companies have some
vintage), while the venture capital route
Private Equity
32 %
was popular for affordable housing (where
entrepreneurs’ fresh approaches towards
providing such housing took precedence).

Venture Capital
14 %
Our survey revealed that ultra HNIs expect
investments through both venture capital and
private equity routes to pick up in the future. The
hedge fund route was not popular – very few Hedge Fund
were looking at that option.
Source: Top of the Pyramid 2016, Kotak Wealth Management

Global funds that have an

impact investment focus Another avenue that was rising in popularity
are setting up shop in among ultra HNIs was direct investments through
India and bringing in their their ‘family offices’. These family houses
independently scout for opportunities and
expertise in managing conduct their own due diligence before investing
these companies into ventures.

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TOP OF THE PYRAMID 2016 | Kotak Wealth Management

PROFILE

Roopa
KUDVA
I am deeply
inspired by the
entrepreneurs
we fund and
work with every
single day. They
are young,
idealistic, and
know no fear,
deviating from
past generations

D
in their altruism edicated, passionate, enlightened, driven, has chosen to enter the relatively new impact
and single- and visionary – these are just a few of Ms investing sector. Since 2015, she is a partner and
minded focus Roopa Kudva’s best qualities, all of which Managing Director of Omidyar Network India
on improving are currently focused on her latest undertaking – Advisors, the India arm of the Silicon Valley-based
society” impact investing. philanthropic investment firm.

Following a 23-year career with rating agency Her transition to impact investing after such a
CRISIL – including eight years as CEO, during long stint in a ratings and analytics firm stem from
which she successfully grew the rating agency her desire to make a meaningful and sustainable
into a diversified analytical company, including difference in people’s lives. As she puts it, “I knew
proprietary research outside India – Ms Kudva it was time for me to do something different, and

78
 Investments

I hoped to find a position where I could leverage enable greater access to basics such as jobs,
my skills and capabilities to make an impact on the education, healthcare, transportation, and
world.” financial services. This combination of momentum
and a supportive environment makes it a
Before assuming this new role, Ms Kudva was phenomenal time for impact investment and
not very familiar with impact investing, but the offers huge opportunities – both for Omidyar
more she learned about Omidyar Network, the Network and other such companies. Her company
more she realised that this was the model she had follows a flexible capital approach. She says, “We
been seeking. The organisation leverages both use commercial investing instruments when they
for-profit investments and non-profit grants with are appropriate and more ‘patient’ vehicles for
an ultimate goal of driving sector-level change. problems that don’t lend themselves as well to
“This gives us the flexibility to support the best traditional instruments.” It focuses on investments
entrepreneurs and organisations, no matter how in five areas: emerging technology, education, “Impact
they are structured,” she says. Ms Kudva says this financial inclusion, governance and citizen investing is at
model is incredibly powerful, and she is confident engagement, and property rights. a tipping point.
that it will provide her with the platform that she India already
desires. “I was impressed with Omidyar Network’s Ms Kudva believes that as the industry continues
leads the region
team of incredibly accomplished and driven to gain momentum worldwide, not only will
in number
people – if they chose to dedicate their careers to India receive more impact investing interest from
impact investing, I knew it had great promise.” foreign entities, but there will be a considerable
of impact
increase in domestic investments as well. In her investments,
She believes that impact investment is coming opinion, sectors that are likely to benefit most and we believe
of age in India. “I can confidently say that from this growth include property rights, mobile that trend will
impact investing’s time is now – especially here money, financial inclusion, and education and continue
in India,” she reiterates. “We have an incredibly skilling. “The proliferation of smartphones in
favourable ecosystem for entrepreneurship: India has been remarkable, and has dramatically
funding availability for start-ups has increased, improved access to education, jobs, and
government policies are encouraging innovation healthcare, offering incredible opportunities
and entrepreneurship, and our best and brightest for investors looking for business models that
students are choosing entrepreneurial paths. We have a clear social benefit,” she says. Her firm,
also have significant drivers of social impact that Omidyar Network, is committed to doubling its
are gaining momentum: more and more people India investments to US$350 million by 2020.
opening bank accounts, increased opportunities “We encourage other HNIs and families to join
for skills training, and perhaps most significantly, us in deploying their capital in investments that
a remarkable penetration of mobile phones that produce financial returns alongside significant
connect people.” social impact,” she concludes.

She believes that growing smartphone

penetration and innovative business models

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TOP OF THE PYRAMID 2016 | Kotak Wealth Management

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