Citywealth IFC insights: India wealth management

Date: 28 Feb 2024

Karen Jones

In this jurisdiction update, Citywealth speaks to industry experts to get the download on the rising star that is India’s wealth management market. We dig into immigration options, regulatory and crypto updates, top-of-mind trends, and more.

India’s UNHW population ranks in the top 10 globally

Rahul Soni, Partner at Fragomen, provides a summary of where the wealth market in India currently sits. He said: “India’s current UNHW population already ranks in top 10 globally, which is clear from the fact that India Wealth Management Market has been valued at USD 429 Billion in 2023 and is anticipated to project robust growth in the forecast period with a CAGR of 4.56% through 2029. India’s economy has been on a steady growth trajectory creating substantial number of UNHW individuals.

Growing demand for wealth management services

These individuals seek professional guidance to manage and grow their wealth, leading to a growing demand for wealth management services. As financial literacy levels rise in India, individuals are becoming more aware of the importance of diversified investment strategies, tax planning and estate management, thus, increasing the demand for expert wealth management advice. This growth in wealth management market is further boosted by advancement in technology in India.”

Registered Investment Advisor (RIA) framework brings professionalisation

“The regulatory environment in India has also undergone significant changes to enhance transparency and investor protection. The implementation of the Investment Advisory Regulation and the introduction of the Registered Investment Advisor (RIA) framework has brought more professionalism and accountability in the wealth management sector in India. Wealth management firms in India are providing a wide range of investment products, including mutual funds, bonds, real estate and alternate investments. This diversification caters to the unique financial goals and risk profiles of the individual clients.”

Soni concluded: “In summary, Indian wealth management market is in a dynamic phase of growth and evolution. With arising number of affluent individuals, increased awareness about wealth management, technological advancements and regulatory improvements, this sector is poised for continued expansion in India.”

Relocation, relocation, relocation

With India’s wealth management market on the up, Citywealth wondered why many UHNW Indians seem to be relocating, or at least considering their options, and what avenues they are opting for.

Hetal Sanghvi, Partner at Edwin Coe, reported seeing an increasing proportion of Indian UHNW families and entrepreneurs relocate, particularly those who are keen to establish “a more robust nexus” in the UK. She listed the following key themes are reasons for relocation:

• Families having young children in schools, often boarding schools in the UK, and the parents spending increasing time in the UK as a result
• Adult children of Indian resident families ‘settling down’, either through marriage or careers, in the UK
• Entrepreneurs looking to structure and/or restructure business interests
• The setting up of family offices in the UK

Himanshu Kohli, Co-founder of Client Associates, said that HNW and UHNW individuals are also considering ‘Plan B’ options, i.e. residency permits or citizenship in other countries such as Dubai, Portugal, Spain, and Singapore. He said: “The reasons for emigration are that as the businesses are doing very well, the founders are professionalizing their businesses and relocating as they follow the culture of working from anywhere. We have seen this trend among our clients since the post-COVID times, as many of them have bought expensive properties outside India in countries like Dubai and London and also shuttle between NCR and Goa and NCR and Dubai. There are three ways by which clients are looking at alternative residency:

1. Bag Baggage Option:

This option is for those clients whose businesses/work commitments are not anchored in their home country and can be managed while they are away from their home country for an extended period. These clients want a better quality of life for their families, including top-tier higher education for their children.

2. Plan B: Your Backup Plan

This option is suited for clients who do not wish to move out of their home country but are considering a Plan B option, which can be converted into Plan A whenever they want. Plan B countries typically have lenient residency requirements and require only a minimum stay in the host country to maintain the resident permit. Plan B is for those who wish to improve their quality of life, plan their retirement, seek new business opportunities and better job prospects, and travel visa-free to several countries using a stronger passport.

3. Citizenship by Investment 

This is appropriate for those clients who do not wish to relocate but wish to obtain immediate citizenship through investment. As India does not allow dual citizenship, they need to apply for OCI to continue living in India. This is a popular option for globetrotters who want to travel the world with a stronger travel document and also provides the lifelong benefit of having extended possibilities of living, traveling, and working outside the home country.

Taking the tech visa option

Previously, the UK’s Tier 1 Investor visa route was used by a number of UHNW Indians looking to relocate to the UL, says Soni. Since its closure in February 2022, it looks like the Global Talent visa is now the popular choice. Given India’s technological prowess, this makes sense. Rahul said: “The UK has a thriving tech sector and a specific Global Talent visa for exceptional digital technology applicants. This is a highly favourable route which is being utilised by Indian applicants, particularly given the wealth of tech expertise in India and the flexibility the visa offers.”

Significant overseas business interests trigger set up of a UK entity

“That said, the route is reserved for those who are considered to be leaders within the digital technology sector and not everyone will have the background or career achievements to qualify. Tech Nation acts as the independent endorsing body for applicants under this route and Fragomen is their lead support partner on immigration matters. As an alternative for those HNW individuals who would not qualify under the Global Talent visa, the skilled worker route is widely used. This requires an applicant to obtain a job offer from a UK sponsoring employer which must have a Home Office licence to employ overseas workers. Many HNW individuals have significant overseas business interests and so choose to establish a new UK entity which starts operating in the UK, which could then sponsor the individual to work in the UK under the skilled worker route (subject to various requirements being met in relation to the business, including having a UK-based employee or office holder, and there being a genuine need for the business to employ overseas workers).”

Additional considerations

Soni also identified the Caribbean as a option being considered by Indians looking to globalise. He said: “Many Indian nationals are also looking at Caribbean jurisdictions (i.e. Grenada, Antigua, Dominica, St. Kitts and Nevis) to secure an additional citizenship, providing at the very least more visa-free travel globally, but also easier access to other countries nonimmigrant and immigrant visa programs.  As an example, Indian nationals have been availing the Grenada program to be able to qualify for E-2 treaty investor visas in the United States, allowing them to operate and run businesses in the US and live in the United States with their immediate relatives. The E-2 is technically a temporary work visa solution, but can be renewed indefinitely; therefore many applicants stay on E-2s for extended periods of time, while others often consider transitioning to permanent residency (i.e. through an EB-5 application).  The Caribbean programs have typically afforded very fast citizenship applications (on average, around 6 months to completion) but regulations are tightening, and some of the minimum investment amounts and requirements have become more challenging to meet.”

Taking sufficient capital outside of India

Those leaving or expanding their options also need to consider how they will fund themselves outside of India. Sanghvi said: “One of the key issues facing those families who are relocating, and hoping to take advantage of the current ‘resident non domicile’ regime, is establishing clean capital (more challenging if they have already triggered tax residency in the UK) and increasing the amount of money that they are legitimately able to take outside of India. Often for these families, the current limits are insufficient to fund lifestyle, especially where the move will involve the purchase of a UK residential property, and using third party debt (where permissible) is not always the obvious or simple answer, given the higher interest rate environment.”

Legislation and regulation

We asked the experts is there have been any significant legal or regulatory changes in India that are set to impact UHNW Indians or those managing their wealth.

Sanghvi said: “There has often, close to a budget, been talk of the reintroduction of ‘estate duty’ however, as this is an election year, it was not expected, and the recent budget confirmed this. That said, families are more minded to consider structuring for the purposes of succession and increasing family governance to this end. The foreign exchange restrictions continue to have a material impact on the families who wish to diversify their asset base, and the understanding is that this will only strengthen as India experiences some capital flight in the UHNW space.”

Kohli cited GIFT City and upcoming regulatory changes for AIFs. He expanded: “GIFT City is a welcome solution for HNIs and UHNIs who want to diversify beyond India or for overseas family offices to invest in India. We believe that GIFT City is becoming a good competition to Mauritius, Singapore, or even Dubai as through this route, NRIs (non-resident Indians) can participate in an institutional asset class where they can take exposure with a smaller amount of money as against other investment options where only institutional investors can participate. The traction to invest in this option is currently low, but we see much excitement on the asset management side to launch similar investment options, and this will allow our clients to diversify beyond India and completely de-risk their investment portfolios. Secondly, there has been a regulatory change wherein after September 2024, all the fresh investments made by an Alternate Investment Fund (AIF) should be in the dematerialized form.”

“As the wealth management industry has evolved over the last 25 years, wealth managers have enhanced their knowledge of domestic and international investments and diversified beyond mutual funds to more sophisticated products like PMS/AIFs. This means that regulators have also become quite active because their idea is to bring in the best practices to safeguard the interests of investors. The regulators tend to bring in more guidelines or improve the governance framework for the different products, which is very positive for investors, wealth managers, and asset managers. As the wealth management industry grows, these best practices are the backbone on which a few wealth managers differentiate themselves from distributors and provide advisory-based services to manage their client’s wealth.”

Other top-of-mind trends

Aside from what’s already been discussed, what other key trends are we seeing out of India?

Soni said: “In the United States, the EB-5 Regional Center Program was recently re-authorized by Congress, allowing for expedited processing of EB-5 permanent residency applications if the investment vehicle (project) is selected in one of the government’s expedited (“set-aside”) categories.  Thus, Indian investors are currently able to shed years off processing time and receive a green card in about a year, with the initial EB-5 application (I-526E petition) adjudicated in 3-5 months in most instances, which is significantly quicker than the approximate 5 years it was taking before the reauthorization of the Program and introduction of set-aside categories.  Further, Indian investors who are already physically in the United States can immediately request an “Adjustment of Status” from the government to receive their initial green card quicker – a new addition to the EB-5 regulation.  Thus, the EB-5 green card category is currently the fastest way an Indian national can obtain a green card in the U.S., and we are therefore seeing a huge surge in interest and applications from Indian nationals in the HNWI market.”

Kohli commented: “The financialization of savings has become a disrupter in the wealth management industry in India. Equity is becoming a mainstream asset class, and clients are moving more towards relocating their balance sheets from businesses and properties into financial markets, setting up their own family offices, and diversifying beyond India.”

Kohli also noted that industry trends ensure that “wealth management has become a need or a necessity rather than the luxury it used to be many years ago.” He expanded: “[A]s the wealth management profession has evolved, many more asset classes have come into play, and in this case, there is a geometric growth that is happening and not an arithmetic growth. This also means more players have entered this space, and the vehicles to invest in these asset classes have also increased drastically. Hence, this leads to confusion among clients on what to choose and how to create a portfolio that will create wealth and preserve it. This is where the inherent need for a wealth manager comes into the picture, as they can streamline the investment options as per the client’s requirements.”

A quick look at crypto

Soni provides a background on the crypto landscape in India: “Cryptocurrencies as a payment medium in India are not regulated by any central authority. There are no rules and regulations or any guidelines laid down for settling disputes while dealing with cryptocurrency. So, trading in cryptocurrency is done at investors’ risk in India. Cryptocurrency/Digital assets industry has seen a rush in investment in the last few years, especially during the covid period. Crypto trading platforms in India are witnessing a big leap in volumes, thus, indicating that this market is going to expand in the coming years.”

Cryptocurrency Bill in 2021

“By introducing the Cryptocurrency Bill in 2021, the government officially took a step toward regulating cryptocurrency. The bill seeks to create a favorable structure for the creation of the official digital currency that will be issued by the Reserve Bank Of India (RBI). It also prohibits all other private cryptocurrencies but, with certain exceptions to boost the underlying technology of cryptocurrency.”

“Tax on cryptocurrency is one of the most confusing aspects in India. Initially, there was no Income Tax Act or Goods and Services Tax (GST) defined on cryptocurrencies in India. However, in the Union Budget 2022 outcome, the Finance Minister presented a tax regime for virtual or digital assets that include cryptocurrencies. Some of the major details of which are presented below:

• Cryptocurrency investors are required to report the calculated profits and losses as a part of their income.
• A 30% tax will be charged on the earnings from the transfer of digital assets that include cryptocurrencies, NFTs, etc.
• If you face any loss from the virtual asset investment, it cannot be balanced against other income.
• While many have embraced the decision to tax virtual currency as it is the first step to recognizing it, the government is yet to pass any official clarification on this matter of whether currencies like Bitcoin are legal or not in India.”

Crypto a top-performing asset class

Expanding on the state of crypto as an asset class, Kohli commented: “As far as India is concerned, it is still a few years before this asset class will become a part of portfolios. Our regulator and the central bank are worried about the quality of money, the depth of the market, and the volatility that this asset class carries, and hence have their reservations about this asset class. However, investors have seen the returns of this asset class over the last 10 years, as in several years, it has been the top-performing asset class, while in a few years, it has been the bottom-performing asset class. It is a well-known fact that cryptocurrency is a risky asset class, but its performance, despite its inherent volatility, is catching investors’ eyeballs globally and even in India.”

It took 30 to 60 years for previous asset classes to evolve in India

“In India, the first mutual fund was launched in 1964, and as the mutual fund industry celebrates its 60th year, the assets crossed INR 50 lakh crore for the first time. On the other hand, PMS and AIFs have existed for 20 years. If we look at the share of these products in Household savings, they are still in single digits. This also shows that it took 30 to 60 years for an asset class to evolve in India, and hence, for cryptocurrency, it is still very early days as there have to be some best practices, and the central bank/the regulator has to be comfortable with this asset class.”

“As far as we are concerned, this is still not a part of our model portfolio as we have yet to understand the breadth and depth of this market entirely. However, we will keep a close watch on the developments in this space happening globally, and we will continue learning about this asset class as there is a high probability that cryptocurrency can become an exciting asset class in the future. Hence, we are not advising our clients on cryptos or digital assets in India.”

Thank you to all of the experts who contributed to this article.

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