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Structured investment products booming

Nilanjan Dey

A number of wealth advisors are known to be offering plans that actively involve derivatives.

Kolkata , Nov. 24

THE market for structured investment products, at times being offered with capital protection options, has started booming in India, thanks to a surge in demand.

Private wealth management firms are making the most of it, a trend that is reflected in the aggressive marketing policies used to service big-ticket customers.

Structured fund of funds (FoFs), Nifty-based trading portfolios and arbitrage funds are now part of the jargon used in high-end investment circles, courtesy products that are billed as different from those that simply provide diversification in tune with clients' risk-return profiles.

A number of wealth advisors are known to be offering plans that actively involve derivatives. They are also increasingly taking advantage of new-generation insurance products in various innovative ways.

In fact, unit-linked insurance is being positioned as a proxy to certain kinds of traditional investments. The idea is to safeguard an investor's capital and prevent it from being eroded. However, managers are rarely ready to offer capital guarantees in a formal way.

Wealth management activity under the aegis of private banks is particularly looking up, say sources, who addthat these entities are well placed to tap wealthy individuals who must also use normal banking services. PMS (portfolio management services), including the discretionary variety, is said to be gaining wider acceptance as well.

Banking groups which are complemented by securities broking outfits — among them are ICICI and Kotak Mahindra — are in an advantageous position, it is said. The latter's PMS, for instance, is spearheaded by Kotak Securities, which has come up with various options, each offering a distinct style.

For example, `Fortune Equity Portfolio' (which presents a "bottom up concentrated portfolio for long-term investors") is different from `Sigma Equity Portfolio' (which seeks to combine "large-cap stocks and bottom up ideas").

Elsewhere, a typical product may involve a trading portfolio focused on the Nifty. This may make use of futures and even index funds. Such a combination is expected to appeal to customers with at least a medium-term horizon.Real estate advisory is also finding a firm footing. Wealth managers, who maintain that the country's real estate market is already among the most high-yielding in the continent, are telling their clients that the sector will grow even more rapidly, at least over the next few years.

It is argued that returns from investment in miscellaneous activities (such as designing, development and sale of property) should therefore attract HNI money. In fact, a number of real estate funds are said to be in the process of being structured by various corporate groups.

What is the wealth manager's take-home? This, sources claim, varies quite a lot, depending on the product being sold and a few other factors. Even a simple PMS is a relatively costly proposition for the investor concerned; a customised investment solution involving not-so-ordinary products will be even more expensive.

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