The term High-Net-Worth Individual (HNWI) has become a buzzword in financial circles, often representing the elite class of investors and businesspersons with substantial wealth.
But what makes someone an HNWI?
Is it just about having money in the bank, or is there more to it?
For financial professionals like Chartered Accountants (CAs) and wealth managers, understanding who HNWIs are and how they function is important.
In this blog, we’ll take a closer look at the definition, classification, and financial needs of HNWIs, focusing on the Indian context.
Along the way, we’ll also discuss their challenges and how CAs can support them.
Defining High-Net-Worth Individuals
In simple terms, a High-Net-Worth Individual is someone with a significant amount of investable assets.
Globally, the threshold is often set at $1 million in liquid financial assets, excluding primary residences and personal collectibles like art or antiques.
However, the definition varies depending on the region and financial institution.
In India, HNWIs are typically classified as individuals with investable wealth of ₹7 crore or more. This wealth can come from various sources, such as real estate, equity investments, or family businesses.
India’s growing economy, coupled with the rise of startups and tech innovation, has significantly contributed to an increase in the number of HNWIs over the past decade.
But why do we care so much about this classification?
For wealth managers, CAs, and financial advisors, understanding the needs and expectations of HNWIs helps in delivering customized solutions.
HNWI Classification: Breaking Down the Tiers
Not all wealthy individuals are the same. They are categorized into tiers based on the scale of their wealth and their financial behavior:
1. High-Net-Worth Individuals (HNWIs):
These individuals hold investable assets ranging from ₹7 crore to ₹35 crore. They typically include business owners, senior executives, and high-earning professionals.
2. Ultra-High-Net-Worth Individuals (UHNWIs):
UHNWIs are at the top of the wealth pyramid, possessing over ₹200 crore in assets. Many of them own multinational businesses, large-scale real estate, or luxury assets like yachts and jets.
3. Emerging Affluent:
These individuals are on the path to becoming HNWIs, with investable wealth ranging from ₹1 crore to ₹7 crore. They frequently act as early-stage investors, professionals, or prosperous business owners.
This classification is not just for labeling purposes; it plays a vital role in designing wealth management strategies tailored to different tiers of clients.
How Do HNWIs Build Their Wealth in India?
Unlike in some Western countries where inheritance dominates wealth creation, Indian HNWIs often create wealth through entrepreneurship and strategic investments.
Many belong to first-generation wealth creators, driven by India’s booming sectors such as:
- Startups and Technology: Founders of startups, especially in IT and e-commerce, have rapidly climbed into the UHNWI category.
- Real Estate: Developers and investors in metropolitan cities like Mumbai, Delhi, and Bengaluru have benefited from rising property values.
- Manufacturing and Exports: Sectors such as pharmaceuticals, gems, and textiles have created a large number of HNWIs.
For these individuals, wealth is not just about accumulation—it’s about sustaining and growing it through intelligent financial planning and risk management.
Financial Needs of High-Net-Worth Individuals
Because of their intricate financial portfolios, HNIs and UHNWIs require specialised management. Their financial needs often include:
1. Tax Planning and Compliance:
Taxation is a significant concern for HNWIs, especially given the intricate rules around capital gains, wealth tax, and inheritance tax (in some jurisdictions).
Indian HNWIs also face challenges in managing GST compliance, especially when their wealth includes diversified business holdings.
Chartered accountants make a difference in creating tax plans that reduce liabilities while adhering to legal requirements.
2. Investment Management:
HNWIs frequently make investments across a range of asset classes, including mutual funds, stocks, bonds, and alternative assets like private equity. A balanced investment strategy is crucial to optimize returns while mitigating risks.
3. Wealth Preservation:
Wealth preservation is as necessary as wealth creation. Economic uncertainties, inflation, and market volatility require HNWIs to adopt strategies that safeguard their assets.
4. Succession Planning:
For business families, succession planning involves legal structuring, such as creating trusts or wills, to ensure a smooth transfer of wealth to the next generation.
5. Global Financial Management:
Many Indian HNWIs hold assets overseas or have cross-border business interests. Managing international tax laws and regulatory compliance is a specialized need for this group.
Challenges Faced by HNWIs in India
Despite their wealth, HNWIs face unique challenges that require careful navigation:
1. Regulatory Hurdles:
Indian tax laws are evolving, and the introduction of new regulations, such as those around foreign investments, can create complexities.
2. Economic Volatility:
Market fluctuations and geopolitical events can impact investment portfolios, requiring continuous monitoring and adjustment.
3. Succession Disputes:
Family-owned businesses, a common feature among Indian HNWIs, often struggle with succession disputes, especially when clear structures are not in place.
4. Managing Multiple Advisors:
Many HNWIs rely on a network of advisors—CAs, wealth managers, and lawyers. Coordinating among them can sometimes lead to inefficiencies.
The Economic Impact of HNWIs
HNWIs are not just individuals with high wealth—they are paramount drivers of economic growth.
Their investments fuel innovation, create jobs and contribute to infrastructure development.
Many Indian HNWIs also engage in philanthropy, funding education, healthcare, and other social causes.
How Chartered Accountants Can Help
CAs play an instrumental role in addressing the financial needs and challenges of HNWIs. They act as strategic advisors, helping with:
- Tax Structuring: Optimizing tax liabilities through methods like income splitting, trusts, or capital gains exemptions.
- Investment Monitoring: Providing insights into how investments align with personal and business goals.
- Regulatory Compliance: Ensuring GST, income tax, and other regulatory filings are timely and accurate.
- Leveraging technology: Accounting Automation products like Suvit can make processes like GST reconciliation and financial reporting easier and can significantly ease the workload for both HNWIs and their advisors.
