Our Credit Insurance Policy is designed for companies that are selling their goods and/or services on credit to overseas buyers. This policy provides coverage to companies for outstanding receivables that are within approved credit terms, thereby protecting the Insured against non-payment risk by its buyers.
Scope of cover
•The policy covers loss due to any or all of the following risks:
•Commercial Risk
•Non payment by the buyer – protracted default
•Insolvency of the buyer
Political Risk
•Military or civil war, revolution, riot or insurrection
•General moratorium on payment by the government of buyer’s country
•Cancellation of import license
•Government decision preventing performance
•Political events, economic difficulties, legislative or administrative measures preventing payment
•Non payment by government buyer
•Premium
•The premium is expressed as a rate in % of the insurable turnover
Basis of premium calculation:
•Extent of coverage sought
•70% / 80% / 90% of the individual bill
•Risk rating of business sectors
•Countries included in the portfolio
•Insured turnover
•Trade losses of insured
•Exclusions
Significant exclusions are:
•Non-payment arising due to trade disputes
•Sales to a private individual who intends to use the goods or service for non-professional purposes
•Sales to an associate company (political and AOG risk can be covered)
•Sales contracts where payment is received in advance
•Sales under irrevocable and confirmed Letter of Credit
•Loss due to foreign currency fluctuations
Nuclear risks
A war between two or more of the following countries: France, China, Russia, the United Kingdom and the United States of America
A war between the Insured’s country and the country of the buyer
Your business is likely to be affected by risks which are beyond your control. These entail commercial and political risks. Trade credit insurance has been especially formulated to protect the policyholder’s business against risks which are beyond their control. A comprehensive trade credit insurance policy ensures improvement of bottom line quality, increase profits and reduce risks of unforeseen customer insolvency. You can also offer credit to new customers. This improves funding access at competitive rates. This is an insurance for short term account, due within 12 months.
Benefits of Trade Credit Insurance Policy:
Trade Credit Insurance has many benefits, they have been listed below –
•It protects your business against risks which are out of your control.
•It improves bottom line quality of the business.
•It increases profits and reduces risks of unforeseen customer insolvency.
•It lets you offer credit to new customers.
•It improves funding access at competitive rates.
•It protects from anticipated earnings restatement.
•It optimises bank financing. This is done by insuring trade receivables.
•It supplements credit risk management.
Trade Credit Insurance Covers:
Trade Credit Insurance provides coverage against commercial and political risks for your business. This insurance helps companies attain goals by turning over their sales into cash conversation.
•Covers the complete turnover with stipulated limits. This is done for top purchasers. For small purchases the limit is discretionary.
•This insurance provides coverage to large purchasers of clients.
•Open accounts sales-export and domestic are protected by trade insurance against non-payment from the purchaser. This can be caused due to buyer insolvency i.e. if the buyer declares bankruptcy of business, buyer doesn’t declare bankruptcy but is unable to pay (protracted default), political risk like inconvertibility of currency.
Who is Trade Insurance ideal for?
As mentioned, Trade Credit insurance assists companies who sell their goods on open account basis. They seek protection by manufacturers and wholesalers, who dispatch goods on credit. This targets both domestic and off-shore customers.
Example of credit insurance
Say your company has profit margin of 5%. But one of your buyers piles up a debt of Rs. 100,000 on you. In this scenario, you need to create enhanced sales worth Rs. 2,000,000. This is required to compensate for lost profits. If your company faces non-payment, it makes your company weaker by reducing your company’s investment power. If you have a comprehensive credit insurance policy, you can handle the account receivables and lessen the losses of the company in case there is a non-payment. This type of insurance is tailor-made according to the size of your company, the type of business, business needs and the sector your business belongs to. This insurance is extended from small-medium entreprises (SMEs) to large multinationals.
Trade Credit Insurance Claims settlement process:
It is a quick and hassle free process to settle your trade insurance claim. Just ensure that you furnish all the essential documents (valid and duly filled/stamped) with your claims from. For further details on this, seek assistance from your insurance provider.
The aforementioned reasons clearly show how buying trade credit insurance is a smart and wise choice. But before you settle down with buying a certain policy, make sure that you do a thorough groundwork and identify your requirements, i.e. exactly what do you need the trade credit insurance cover for.
Everyone has a bad habit or two. Biting your nails? Pulling all-nighters? Procrastinating? Guilty. Little habits become bigger patterns and can end up messing with your finance and your ability to achieve your goals.
But not all “bad” habits are actually, you know, bad. And if you believe popular health myths, you might go all in on trying to stop doing something that was never even bad for you in the first place. Good news is, with these “bad” habits that are actually good for you, you shouldn’t bother.
Not on Time –This is one of the most common bad habits. But this bad habit can do wonders to your equity portfolio.
One thing that even Warren Buffett doesn’t do is to try to time the stock market. A majority of investors, however, do just the opposite, something that financial planners have always been warning them to avoid, and thus lose their hard-earned money in the process.
So, you should never try to time the market. In fact, nobody has ever done this successfully and consistently over multiple business or stock market cycles. Catching the tops and bottoms is a myth.
No News –Staying updated with the latest NEWS is a very good habit but this could help you lose money in the stock market. Breaking news tends you take wrong financial decisions.
There is a lot of information/news flowing around in newspapers, Social Media, TV, Internet. This information/news is so well decorated for you to take instant action. News tends you to forget fundamentals and emphasis recent events.
Staying away from such breaking news can help you stick to the fundamentals and grow money with the stock market.
Lazy Action – When it comes to investing, people often say that the more active you are, the wealthier you can become. However, it acts in reverse when it comes to investment in the Stock Market!
So, if you are too active with your portfolio, you are likely to get fewer returns! Shockingly, laziness will help you to get more returns! Yes, you read that right! Notably, investors should choose this for long term investment.
And what is more, market variations will not hurt your investment gains. Invest in good Stock/Fund and forget is the best strategy.
Being Unfaithful is really a bad habit but this bad habit can lead you to make more money while investing.
People usually hold a Stock/Fund/Lic because that is very old or is gifted by their Parents or Grand Parents.
Investors lose money and opportunity when are emotionally attached to some stock/financial product that is inherited and doesn’t sell them even it is not making money.
A good return paying Stock/Product/Strategy will not always give a return. Being unfaithful with your investment & exiting will open new opportunities.
Do Your Own – Following your friends/family/acquaintances is a good habit that can often lead to wrong financial decisions.
The typical buyer’s decision is usually heavily influenced by the actions of friends/family/acquaintances.
Thus, if everybody around is investing in a particular stock/fund/asset-class/product the tendency for potential investors is to do the same.
But this strategy is bound to backfire in the long run. Stop following the herd and use your brains to do your own.
Like it or not, bad habits are bad for you — mentally, physically, emotionally, and even financially.
While some bad habits listed above are extremely good for your financial portfolio and you need not get rid of them.
Indemnity insurance or professional indemnity insurance is a type of insurance policy which is designed to shield professionals and business owners if they are found to be guilty of some event such as misjudgement or some other professional risks. Indemnity insurance is also called as professional liability insurance. It provides cover for the claim of providing inadequate services, advice, design, etc. against the insured. Liability insurance also covers the compensation that is payable to the client for correcting the mistake.
Need of Professional Indemnity Insurance
While working as a professional, it is always a possibility that you or your colleague could make a mistake, regardless of the experience. So, it is a good option to have a liability insurance if you regularly work with clients or businesses and Handle their work, data, intellectual property or even provide them with professional services or advice. The indemnity insurance covers you and your firm from facing financial losses if a claim is made against you or your company. Thus, having a professional liability insurance which adequately covers your organisation is a safe option while doing a day to day business.
Professional Liability Policy Covers
An indemnity policy covers the following Range of scenarios –
• Professional negligence
• Loss of data or other documents
• Loss of goods and/or money
• Unintentional breach of confidentiality or copyright
• Claim investigations expenses
• Defamation
Who Can be Insured Under the Professional Indemnity Insurance?
This policy can be taken by –
• Doctors and medical practitioners like surgeons, pathologists, etc.
A commercial crime insurance is a policy which offers comprehensive cover and provides protection against employees’ theft and any losses from forgery, computer fraud, etc. In the event of any commercial crime, it becomes the duty of the insurance company to safeguard the policyholder against various losses or damages.
Undeniably, you can’t ignore white collar crime which is rising at an alarming rate. Many times, companies don’t think of purchasing the cover against fraud. However, the reality is that it’s more the senior staff and trusted employees that commit fraudulent activities. And when they strike, they do it not for once but again and again over a period of time.
As a company, it becomes necessary for you to have a viable financial coverage instead of wishful thinking, to get protection against such fraudulent activities. Here, commercial crime insurance policy can play an important role.
Here are the coverages which are available with a commercial crime insurance policy=
Employee theft Cover= It includes loss of securities, money or other property by theft or forgery by the employee of the company.
Premise Cover= It includes losses from destruction, wrongful abstraction, theft of securities or money from the policyholder’s premises by third-parties.
Transit Cover= It comprises of losses from disappearance, destruction of money or security outside the policyholder’s premise by a third-party.
Depositors Forgery Coverage: It includes losses or damages which arise due to losses from instruments like cheques which are fraudulently drawn by a third-party on account of the policyholder
Computer Fraud Coverage: It comprises of losses which a policyholder has to endure due to computer fraud made by third-party along with the expenses which the policyholder has to incur due to a violation of computer.
In most of the cases, commercial crime insurance policy comes with a deductible clause which states that at the time of loss, a part of the claim would require being paid by the policyholder. The insurance company would pay the remaining amount. Further, most of the insurance companies allow customizing commercial crime insurance policy to cover various fraud-related losses as per the company’s specific requirements.
The insurance policy also helps by covering the additional costs which a policyholder incurs at the time of loss or damage. For instance, after the commercial crime, the policyholder may require a temporary replacement of equipments or temporary workforce or office space. Similarly, additional expenses may be spent by the company in transporting of documents or equipments. Here, the insurance company may pay the additional cost along with the additional cost incurred in bringing the external workforce on board.
Case
KS Automobile Spare Parts was situated in Pune. Backed with over 100 employees, the company had a huge clientele base both in India and abroad. Last year, the company got a big contract of exporting spare parts worth Rs 2 crore to a buyer situated in Dubai. Considering the quanturn of the order, employees were working in double shifts.
One day, a worker named Kishore was working in night shift. During the break when a few employees were outside the site, he took an undue advantage of the situation and stole ten packets of spare parts which were to be included in the part of the exporting order.
However, Kishore’s crime was captured on CCTV which was installed there. Though the company recovered the packets of spare parts were found; they were in bad condition.
The act of Kishore caused heavy losses to KS Automobile, who had to employ extra employees to manufacture spare parts which got damaged during the theft. It was an additional cost that the company had incurred. The entire incident made the management of K.S Automobile to think what could have been done to avoid the situation.
Solution
The situation would have been different if KS Automobile had a commercial crime insurance. The insurer would have come forward to cover the losses which the company had to incur due to theft committed by its employee. Further, as K.S Automobile had to pay extra to get additional workforce, the cost associated with it would have been covered by the insurance company as well.
Stock markets are volatile by nature which tends to make investors nervous about their exposure to one asset class, especially equity. To get your asset allocation formula right at all times, it is important for investors to understand their risk appetite and choose the right strategy to build wealth in the long term.
Diversification plays a key role in your financial planning. We asked Chirag Mehta, Senior Fund Manager – Alternative Investments, Quantum AMC if there is a thumb rule for diversification to achieve financial goals in the long term.
“Diversification helps in balancing out the risks and returns to achieve adequate returns at the same time minimizing the risk for increasing the probability to get the return an investor is looking for,” he said during an exclusive session conducted by Economic Times to address investor concerns amidst market volatility.
Chirag Mehta also shared a tried and tested Asset Allocation Rule of 12:20:80 that works across market cycles and that investors should adopt while investing in mutual funds to mitigate risk.
“Asset Allocation Rule of 12:20:80 refers to 12 months of expenses kept aside for emergencies like job loss or loss in business or a medical emergency. The rest of the money needs to be split 80:20 which means 80 percent to be invested in equities and 20 percent in gold assets. Gold acts as a diversifier and adds stability to your portfolio,” adds Mehta.
Maintaining a good balance between asset classes that have appreciated too much and those that have not performed well in the short term is crucial. For investors to set the asset allocation right, it’s important to understand the characteristics of each asset class. “Investors should stick to their objectives while diversifying into different assets like equity, debt, and gold. Since asset allocation is for the long term, short-term volatility should not affect your portfolio,” feels Anup Bansal.
On factors that play a crucial role in rebalancing and monitoring the portfolio, Kaustubh Belapurkar, Director – Fund Research, Morningstar India says, “Rebalancing is within a strategic limit depending on investor’s needs and market conditions. From 80 percent, the equity allocation can come down by a few percentage points but never zero, this has to be remembered.
Gold can be a great diversifier provided investors have it in their portfolio at all times, not just when it’s performing. You have to stick to your thesis and keep rebalancing the portfolio within a confined (bracket) rather than trying to make it zero or one as it’s always about modulating the exposure where you see pockets of overvaluation and undervaluation.”
Many of us might be planning to quit job or close a business or pursue hobbies (without expecting money) by taking early retirement. However, early retirement is not that easy unless you plan them well. You need to be ready with a few things. Certain things would not be in your control. In this article we would provide some tips on how you can plan for early retirement.
What does early retirement mean?
While retirement age is 58 years, many are going on early retirement of 5 years or 10 years or even 20 years. Means, people want to retire at 40 years or 45 years or 50 years of age itself.
10 Tips on How to Plan for Early Retirement
Here are major pointers which can help you to plan for early retirement. This list is not comprehensive, however, can provide clarity.
1 – Decide what you intend to do
One of my friends Mr. Srinivas indicated he wanted to have an early retirement at 45 years of age. While I appreciated his decision, I asked him what he is gonna do after retirement life. He said “I have not yet planned”.
This is not the biggest mistake one would do when they plan for early retirement. You want to retire early, but you do not know what you are going to do after retirement? One can pursue their hobbies. They can try to achieve whatever they aimed, but could not do in their life. They can try creating Vlogs, freelance service in the areas they are passionate about, wealth management tips, mentor people in the area which they are expertise etc., There are Several Ways where you can earn during your leisure time.
I know many people personally who planned early retirement and worked as consultants in advising corporates on how these corporates can scale-up both in terms of business and also in reducing attrition in the company.
2 – Take Sabbatical / Leave for a few months
Last year, one of my colleague was thinking of resigning as she wanted a break. Just before she put the resignation, we had to casual talk. Taking a break is good, but the approach could be different. Based on my advice, she approached HR and had 6 month sabbatical leave. Those 6 months, she had fun and frustration both. Finally, she agreed that she wanted a small break and not a long break.
One should decide what kind of break they are looking for. Planning for early retirement is good, but, one should experiment by taking couple of months leave or with sabbatical leave of 6 months to 1 year. This is like testing yourself whether you are ready for early retirement or not.
3 – You don’t get regular income after early retirement
Many individuals would estimate how much income they might get by doing adhoc / hobbies / freelancing services etc., However this is not regular income. It such income can fluctuate.
I still remember one of my friends who took early retirement and had insurance blog where he used to earn income through advertisement as well as selling insurance policies online. He used to earn anywhere between 1 lac to 1.5 lacs per month till couple of year back from where he used to manage expenses. However, these days he earns some peanuts. One should not expect to have regular income from such activities.
4 – Expenses would continue to rise
You might be spending a specific amount of expenses now. However post retirement, you do not have control over such expenses. Check the latest inflation rate in the US which has crossed 8%. You should understand that you do not have control on your monthly expenses. An increase of 6% to 9% of yearly expenses should be considered while you estimate your future expenses.
5 – Don’t expect high returns from fixed income
Till 2020, Bank FD’s offered 6% to 7.5% returns. In the last 2 years, fixed income options including bank FDs or debt funds have given 4% to 5% returns. Don’t expect high returns from fixed income options in future. Countries like Denmark, Japan, Sweden and Switzerland have negative interest rates i.e. Investors need to pay money to keep their money in banks in these countries. While it might take some time for such situation to arise in India, one should expect that FD rates would decline gradually in the coming years.
6 – Invest in equity to beat inflation
If you have accumulated some money and investing in non equity options, then be ready that your accumulated money would reduce at a higher pace compared to the inflation rate. The only way to have returns that beat inflation is to invest in equity. However, investment in equity comes with risk. If you are thinking of early retirement, consider taking risks and invest in equity.
7 – Don’t invest in equity and expect to withdraw regularly
This is the biggest blunder mistake investors make. They plan for early retirement, they feel they can still take risks, invest in equity and start withdrawing some money on a regular basis. Investment in equity is a long term game. Don’t play in the short term. You would lose money. Alternatively, you can try for Some of the Good Systematic Withdrawal Plans in Mutual Funds.
7 – Two bucket strategy works very well
We discussed about 2 bucket strategy earlier.
i) Based on whatever accumulated amount, one can divide this into 3 parts. Two parts can be invested in equity for over 7 years. Since equity generates 10% returns, your investment would get doubled in 7 and odd years.
ii) One third of the amount can be withdrawn for over a 7 year period. One can invest this in simple FD or simple short term debt fund.
iii) Repeat step-1 every 7 years. Means the investment amount would always double for the rest of your life.
This 2 bucket strategy works well as you are not touching the equity investment for 7+ years which is required to grow.
8 – Have you considered all your financial goals
Don’t be in a hurry and go for early retirement. Consider all your financial goals as part of your plan. It could be children education, foreign education for children, foreign vacations in the future, buying a dream home etc. All these come with a cost. Don’t go for early retirement and then start thinking about these things.
9 – Don’t underestimate skyrocketing medical expenses
Mr. Rajesh wanted to have an early retirement at the age of 45 years. He is physically fit when he had an early retirement plan. However, after a couple of years, he had serious health problems and his medical insurance did not support them. He had to spend lacs of rupees on medical expenses which he never planned. While it is impossible to estimate the skyrocketing medical expenses, there should be a health insurance plan + some amount allocated towards it.
10 – You need to take your family support too
After you have considered all these pointers, consider taking your family buy-in too. Unless they support you, early retirement is not going to be that easy. Once you explain your plans, how you would manage family expenses and what you intend to do after your early retirement, things can be clear to your family too.
Mutual funds and Smallcases are the two asset structures in contention, and we’ll compare them over the course of this article to understand the fundamental difference between Smallcase and mutual funds.
As investors, most of us spend a considerable amount of time window-shopping for the right investment avenues. “Should I invest in the safety of debt instruments or should I stay equity-focused? Should I pick evergreen stocks or can I benefit more from trading the seasonal ones? What about adding some cryptocurrencies to my portfolio? How long should I stay invested?” Questions, so many questions.
The truth is that unless you’re an exceptionally nuanced investor with well-rounded insights about multiple sectors, a diversified portfolio can hold the answer to most ‘what and why questions as far as investments are concerned. Two financial avenues facilitate this diversification optimally; the first is a household name and the second has emerged as a buzzword in the last year or two. Mutual funds and Smallcases are the two asset structures in contention, and we’ll compare them over the course of this article to understand the fundamental difference between Smallcase and mutual funds.
What are mutual funds?
A mutual fund is a pool of money collected from many investors to invest in securities like stocks, bonds and other assets. Professional fund managers, vetted and hired by mutual fund houses or Asset Management Companies (AMCs) are responsible for picking the constituents of the fund and allocating capital; they can attempt capital gains or income production based on the investment objectives of the fund as per the prospectus set out at the time of the fund launch (called NFO).
What is a Smallcase?
A Smallcase, on the other hand, represents a capital allocation structure similar to portfolio management services (PMS) that were previously reserved for wealthy individuals (Read: HNIs and UHNIs). As a product, this is an idea that has caught the fancy of many well-heeled millennials as well as on-the-brink wealthy, ever since SEBI hiked the minimum investment amount for portfolio management services (PMS) from ₹25 lakh to ₹50 lakh in November 2019. In some sense, Smallcase may be called affordable PMS – with a starting price as low as Rs199/month. Basically, a Smallcase is a basket of stocks or ETFs, decisively created by the top qualified and registered investment advisors (RIAs) in India, based upon a theme, strategy, or objective.
David vs Goliath: A legacy product vs a promising challenger
If we have to compare the sheer size of the market with respect to Assets Under Management (AUM), mutual funds represent ₹36.74 trillion as of September 30, 2021. In comparison, Smallcases are a disruptive product that has been around for approximately 6 years now. Quoting the founder and CEO Vasanth Kamath “Our users multiplied three times from 9 lakh in March 2020 to 28 lakh in March 2021.” In FY21, the firm saw Rs 8,000 crore invested through its platform. A drop in the ocean, as far as the larger financial products industry is concerned.
Smallcase vs Mutual Funds: Points of Comparison
1. Exercise Control
Investing in Smallcases potentially offers investors better control over securities as the shares are credited directly in the Demat account. Having the portfolio right at your fingertips allows you to time your exit and know where each investment goes, which isn’t possible with mutual funds; you can cherry-pick which mutual fund you want to invest in, but the customization ends there.
2. Risk Mitigation Mechanisms
Smallcases are thematic investments; they invest in companies and securities that follow an underlying strategy or idea. For example, there can be a Smallcase that focuses on Clean Energy companies or fast-growing tech companies that focus on enterprise software integrations. Since these ideas are highly specific, diversification is restricted. For those intent on diversification, mutual funds offer a basket of good companies that are related by larger themes such as industry type and revenue benchmarks that may be a better hedge against volatility over several business cycles.
3. Cost of Leaving
In many mutual funds, there is an in-built penalty for liquidating your assets before the minimum stipulated time (generally just about a year)- this expense is called the exit load which ranges from 1-2% of the total investment. Typically, all mutual fund houses adjust this amount against the net asset value (NAV) of the fund. Smallcases, by design, allow investors to buy individual units of securities that are directly credited in the demat account like common shares. Since there is no exit load on selling shares, there is no exit load on selling smallcases.
4. Management Fee
Any asset allocation structure is only as good as the people managing it, i.e., the fund manager- who in these cases is typically someone who holds high repute in the financial markets. Understandably, this expertise attracts a certain cost, apart from the cost of monitoring and managing the fund. In the case of mutual funds, this cost, called the expense ratio, is a percentage of the total fund value, capped at 2.5% by SEBI. Smallcases have no fixed range – the cost differs from case to case and RIA to RIA, depending on the nature and theme of the basket of investments.
5. Access to Returns
Smallcases give investors direct access to their holdings since the shares are directly credited to their demat account. Hence, all corporate actions such as dividend distribution as well as the issue of bonus shares take place directly with the investors. In the case of mutual funds, the returns are collected in real-time but distributed quarterly.
6. Volatility
Due to the nature of the theme-wide concentration of Smallcases, they are typically more volatile than the stock market in general since the risk is concentrated in a specific strategy or idea. However, as one of the fundamental principles of finance states – the higher the risk, the higher is your potential for gains. Mutual funds, on the other hand, spread the risk across companies working in different areas even if the fund is concentrated in a specific industry. Hence, the latter is more resilient during market ups and downs.
Where should you invest?
While choosing between mutual funds and Smallcases, you must consider the following questions:
• Do you have adequate knowledge of the market?
Investing in a Smallcase requires some degree of market research and ample time to sort through to find the best Smallcase to invest in. It is an excellent investment for those who have a good idea of how markets operate. However, you can invest in a mutual fund without any market knowledge.
• How much control do you want over your investment?
Smallcases allow you greater flexibility, transparency, and control over your portfolio. You can choose a Smallcase that aligns closely to your financial goals and ideas, giving you greater discretion. On the other hand, investing in mutual funds comes with comparatively low transparency, and you have minimal influence over your portfolio.
• For how long do you want to park your funds?
Smallcases come with no lock-in periods, while mutual funds require you to lock-in your money for a considerable amount of time. Moreover, the charges associated with mutual funds are higher.
• How much time are you willing to spend on tracking your investment?
Investing in Smallcases requires you to keep a tab on your investment. You will have to decide when to enter the market and when to exit it to get the most returns. You may also have to keep a check on the returns to make sure they are on track. As for mutual funds, you can simply invest and let the experts take care of your investment. You may review it once a year.
Based on how you answer these questions, you may choose between these two investment avenues.
Closing Thoughts
As far as investments as concerned, asset allocation structures are as effective as the investor’s understanding of their goals. Both Smallcase and mutual funds are excellent avenues for growing wealth and intelligent investors should use these tools judiciously to their benefit. Where mutual funds provide the diversification a portfolio might need, Smallcases are conveniently packaged customizable investments in simple ideas that could return well over time.
Family office and HNIs can be significant investors for social enterprises with their patient and flexible capital. Here’s a lowdown of reasons behind their hesitancy and what impact investing can bring to their portfolios
If Covid-19 has taught us anything, it is that the world can no longer afford to ignore social and environmental issues. Climate change, poverty, human rights, gender inequality are just some of the issues that are fast becoming central to mainstream business decisions. This paradigm shift towards people, planet and profit is a direct result of the growing understanding by global leaders that socio-environmental issues are agnostic in their impact on people’s lives, cutting across socio-economic levels and geographies. One of the solutions to solving these global issues is impact investing.
The impact investing ecosystem in India has rapidly grown over the last decade. According to the data from the Impact Investors Council (IIC), more than 600 impact enterprises in India now affect more than 500 million lives, attracting over $9 billion in capital. However, most impact capital comes from foreign donors and investors, be they development finance institutions, institutional investors, high-net-worth individuals or global foundations. While this inflow of impact-focused capital has helped build a robust ecosystem for impact investing, it continues to serve as a stark reminder that domestic private capital is still focused on conventional approaches to investment.
Indian family offices and high net worth individuals (HNIs) are important stakeholders in India’s investment landscape. However, investor participation in impact investing is still at a very nascent stage. According to ‘Unlocking Impact Capital: The Indian Family Office Edition’, a study brought out by Waterfield and the Indian Impact Investors Council, domestic family offices and HNIs make up only 7.5 percent of participants in impact investments in India between 2016 and 2020. The same study also shows that Indian family offices and HNIs have polarising views on impact investing. Nearly 52 percent of Indian family offices and HNIs believe that doing good can also generate market-linked financial returns and a near equal proportion believe the two must remain separate and distinct. Family Office and HNIs, with their extensive networks, can be significant investors for social enterprises with their patient and flexible capital. Coupled with the intent to align their wealth with their personal values (a trend which is developing amongst the NextGen), it makes family offices and HNIs perfectly placed to become an attractive source of capital for this ecosystem.
For family offices, impact investment opportunities address issues related to the masses—social enterprises that find solutions for India’s largely underserved but incredibly aspirational ‘next billion’. Some optimistic Family Office investors view impact investing through the same investment lens as they do for any other asset class. This is a definite win for the impact investing ecosystem as these investors function as evangelists, strongly advocating the ability for impact investing to provide commercial returns and impact. Equally, many family offices and HNIs continue to have reservations regarding the ecosystem. They repeatedly point out the industry’s inability to demonstrate measurable results. Moreover, a lack of common frameworks and a common language to measure the impact make greenwashing a real concern. To add to this, many families feel that impact funds and enterprises often lack skilled professionals with adequate on-the-ground experience to understand the nuanced challenges of these businesses.
Additionally, potential investors face product related barriers because of a lack of good quality investment opportunities across the risk-return spectrum. Domestic investors have not been sufficiently exposed to the wide variety of impact investing opportunities available in the country. They range from equity investments into funds and social enterprises to less conventional social finance models such as development impact bonds (DIBs), loan guarantees and pay for success models.
India is not lacking in socio-environmental issues and there is enough and more room for philanthropic, impact, and commercial capital to co-exist and complement each other in alleviating socio-economic issues. Wealth advisors to family offices and HNIs can help their clients contribute to real social change by earmarking ‘sustainable development capital’ in a client’s portfolio for the broader spectrum of grants, direct investments in social enterprises and blended finance. Exposing families to opportunities across this spectrum will help broaden the perspective and give clients multiple options to deploy capital towards social development. Equally important is to be able to create metrics for clients that enable them to measure, monitor and evaluate the “impact quotient” of their investments.
As India inches closer towards achieving the UN Sustainable Development Goals and climate commitments made at COP26, unlocking Family Office and HNI capital for sustainable development can be a game-changer. It will require a concerted effort amongst wealth managers to channelise domestic capital to the social sector. It will mean educating and training our relationship managers, working with partners to source investment opportunities, and being able to diligence social enterprises through both the commercial and impact lens. As investors, we applaud the unicorns that get created, but can we also applaud those social enterprises and impact funds that aspire to touch a billion lives.
“The only constant in life is change” – Heraclitus.
If there is anything that the current environment has taught us, it is that change is inevitable and often, unexpected. At the same time, it has underscored the importance of being agile and future ready. For the wealth management industry, winds of change had already started blowing, taking the industry towards a more technology-enabled future. In the last few years, technology has driven many changes across various sectors. Digitally-powered solutions and digital interactions are changing the way companies work and provide services.
Besides the technological changes, wealth management firms are doing well to keep up with the changing needs and attitudes of investors. The attitudes of investors across different age groups and their expectations from wealth managers is currently undergoing a transformation. Add to that, the complexity of the economic environment and the need to stay tethered to the traditional values of trust and transparency.
Let’s dwell into some of the paradigm shifts taking place in the wealth management industry:
New generation of investors
A huge amount of global wealth is currently changing hands from the previous generation to the new generation. Shaped by dissimilar experiences and brought up in a different environment, the new generation of investors has markedly different expectations from their wealth managers when compared to the previous generations. They want to be respected and treated as unique individuals. They seek personalised recommendations based on their financial goals and liking. This new breed of investors doesn’t shy away from doing their research before investing in any investment option. They also discuss investment options with their friends and colleagues and are open to their suggestions. While in the past, advisors and wealth managers interacted with their clients through face-to-face meeting and telephonic conversations, the new generation of investors expects their money managers to be available across different channels at any point in time, in demand.
Goal-based planning
The industry has been witnessing a slow migration from product-based to solution-based offerings. Clients today demand holistic and end-to-end solutions that meet their various wealth related needs. These could range from fund raising for an entrepreneurial venture to creating a sufficient corpus for the child’s foreign education. Instead of providing products or solutions in silos which only meet the one-time needs of the client, wealth managers are undertaking the customer journey along with the clients. This requires assessing the client’s risk profile, understanding her multiple life goals, determining the return requirements, creating an asset allocation strategy that meets these requirements, and continuous monitoring to adjust for changes in the client’s circumstances or the external environment.
Embracing digital
Digitally-powered solutions are slowly becoming the norm, rather than a competitive advantage. Covid-19 has accelerated the adoption across industries. As individuals increase their digital engagements, the wealth management industry, which was traditionally more of a human touch business has now turned phygital. Technology has the power to transform businesses, elevate interactions and user experience, and create customised solutions that generate high value and client satisfaction. Wealth management companies are now looking at artificial intelligence (AI) and machine learning (ML) powered tools to collect and harness data. This helps wealth managers create personalised solutions for their clients. Digital tools are now being extensively used to enhance reporting, analysis, and client interactions. Technology, if harnessed well, will go a long way in further enhancing the human interactions.
Retirement & Legacy Planning
Wealth managers serve clients across the wealth spectrum and cater to their multiple needs. One of the biggest concerns that the wealthiest clients have is whether they will outlive their assets. This is now becoming increasingly complex due to longer life expectancies. the increasing cost of medical care, and concerns over the value of their assets. At the same time, many wealthy individuals wish to have a proper plan in place to pass on their wealth to the next generation. To effectively meet these requirements, wealth managers are engaging with clients early on, to balance their short and long-term financial goals.
The wealth management industry is witnessing several changes. These changes will inevitably make it easier for investors across different age groups to invest and fulfil their financial goals. Yet, some things remain the same—like staying agile, adapting to new imperatives and ensuring trust, transparency and client-centricity are not compromised.
