Where should a hni invest

are you a HNI and loosing money because of your relationship manager

HNIs are the most sought after by private bankers, wealth managers and stock brokers as they offer an average of more than Rs. 5 crores of fund. Portfolio management services (PMS) offered by brokers aim to give returns which are generally 4-5% higher than the benchmark. Wealth managers or private bankers promise to invest across asset classes. Often they package their schemes with fancy named structured products.

Take a typical example that you see quiet often. A presentation is made to you by a smart executive. You are convinced that your money is going to a big name in the market. Forms are signed. Power of attorney (POA), that allows the company to go ahead and invest on behalf of you and not wait for your approval, are given. When the going is good everybody makes money. You are treated to lavish dinners and cocktail parties. As the trust shapes up, profits are made, more and more cheques are signed. Meanwhile you are sold a big insurance policy and are persuaded for investment in a upcoming real estate project as well. And before you know you have already made huge investments.

And suddenly the market crashes. Your Wealth manager or Relationship manager calls you up and ask you not to worry. You are convinced somehow that you are in safe hands. The first loss happens and it seems to be big. More than by how much the market has crashed. You pick up the statement and realize that most of your money was either in the small and mid cap, or even worse, was being used in futures and options.

Well you thought its time to wake up and confront your RM. He comes and tell you that you will still make profit as now they will adopt another strategy which exploits the arbitrage opportunities in market or may be another strategy called straddle, that allows them to cover positions at both ends i.e. if the market goes down or goes up. You have no option but to say yes, go ahead but keep you informed regularly.

You make a little profit two months and suddenly suffer another loss in subsequent months. The answer to the loss this time is the market was very volatile and moved suddenly beyond the range. Or a new hi tech software in the market did not let them encash enough arbitrage opportunities. You tell your RM to stop trading. And he comes with yet new strategy. Invest in Gold. He called it gold-linked debentures.

The objective again is to match the performance of physical gold but keep your money safe of any downside. You tell yourself gold is the safest option. Let’s go ahead with this. Almost 80% of the money is invested in a fixed income product in such a way that on maturity the invested part, let us say 80%, and the plus they get on the interest equals that of the principal. That makes your money safe. The rest 20% or so is put in gold. But not in physical gold. It goes again in derivatives. This time it is gold future. And you realize later this again is a sham.

By now you know that these structured products are nothing but different strategies, often so complex that you do not even think of knowing how it actually works, and what if the market does not perform up to the expectations, which is more often than not. Promises that were made to you, that your capital is always protected and there is no way you can suffer any loss, was nothing but a plain lie.

You close your account with this company or bank. You are sad with your losses running into a few lakhs or maybe even a few crores, but you can manage. Your RM moves on. He / She is still getting his or her salary along with the bonuses that were made by playing your money in these products. Infact your RM even got a job promotion because of you. Its time you learn from your mistakes. Remember the following points:

1.. You must not just sign any paper or POA before reading it yourself. We agree time is more important to you. But the money you will save will be the money you earn.

2.. Understand the risks, capital protection, charges. Do not rely only on the RM. Call for a meeting with more than two senior managers and directors. Ask for past records of products and schemes in writing. After all you are giving away your hard earned money and big money!!

3.. Cross check about the management and the products with their competition. You are most likely to get more insight into the product.

4.. Subscribe to sms alerts of all the transactions, even if they disturb you daily. You can check them while visiting loo.

5.. Re-look at the privileges. The more they are. The more dinners you are taken out. The more it is going to cost you, without you knowing it. Remember, there are no free lunches.

6.. Learn from the mistakes of others as well. As it happened with Citibank where one of its employee produced an alleged SEBI endorsement of an investment product to win over clients. No regulatory body endorses any individual scheme or these kind of structured product. One can simply check at their website.

7.. These schemes or fancy structured products are more riskier than any of the conventional way of investing. Know your risk profile. Work out the time frame. Have a well balanced asset allocation. Diversify your portfolio and review it regularly.