“There is certainly interest in fixed income from the high net worth segment, with many family offices, corporate treasuries, ultra-high net worth and high net worth individuals starting to look at bonds as a safe haven option,” said Deepak Sood, head of fixed income at Alpha Alternatives. “There is some profit taking in equities and they are showing an increased allocation to fixed income, including private credit funds, which offer more stable returns on a risk-reward basis,” he said.
The government, in Budget 2023, announced that from April 1, bond fund profits would be taxed at personal tax rates and the benefit of indexation for inflation adjustment would be cancelled. The step was taken to give a level playing field to the entire range of fixed income products. Subsequently, a significant portion of HNI interest in bonds has been channelled through alternative investment funds (AIFs).
According to Dipen Ruparelia, head of product at Vivrity Asset Management, recent data provided by the Securities and Exchange Board of India shows that cumulative net investments by AIFs in bonds is Rs 1.16 trillion, with bonds accounting for 30% of the total cumulative net investments as of March 2024.
“There has been an upswing in investments in private credit funds among HNWIs in India…After this (tax) change, HNWIs are finding the risk and return (after tax) of these funds more favourable,” said Arjun Chowdhury, group executive, HNWI banking, non-resident Indians (NRIs), cards and payments, and retail lending at Axis Bank. Chowdhury pointed to higher returns in the range of 5-10% compared to investments in traditional fixed income instruments such as deposits and non-convertible bonds. The removal of tax benefits for traditional fixed income mutual funds has encouraged HNWIs to actively seek higher returns from fixed income and under pressure from professional portfolio managers and AIFs, several investment managers have chosen to pursue more active management strategies. “This gives them flexibility in duration calls, flexibility in allocating capital to corporate and government bonds and also flexibility to aggressively use interest rate derivatives and leveraged positions to manage risk,” said Sood of Alpha Alternatives.
The HNI space has seen a notable trend of many investors preferring to include private credit in their fixed rate bond allocations rather than restricting it to alternative allocations only, said Nilesh Dedhi, CEO, Avendus Finance.“This strong growth is due to increased awareness of private credit instruments among corporates and promoters, making it better suited to their specific situations and providing greater flexibility to customise it as per business requirements,” Dedhi said.
