Find out: Which investment options can HNIs consider

Excerpts from Markets Midday on CNBC-TV18 Watch the full show »

Pradeep Dokania, managing director and chairman, global wealth & investment management India, Merrill Lynch spoke to CNBC-TV18 about various investment options available for high networth individuals (HNIs).

He highlighted the key parameters they should consider while looking at their personal finance investments.

Below is the edited transcript of his interview with CNBC-TV18. Also watch the accompanying videos.

Q: What are the favourites that HNIs in India prefer in terms of investment options? Is equity high up?

A: In overall scheme of things, equity is not very high. Indian high net worth savings can be classified into five vehicles you can say. According to us, on the stock the biggest should be real estate. Second should be fixed income, third would be alternate investment and in Indian context that is gold, some bit of silver and not hedge funds.

Four would be cash and the smallest asset class is equity, as per our estimate the public shareholding should be around USD 200 billion. Indian's holding of gold should be a trillion dollars and above. The penetration of equity is around 5-6% compared to significantly higher, maybe 90 plus numbers of the asset classes.

Q: As a personal finance expert would you recommend that these ratios should change? What would be an ideal investment make look like?

A: There can't be any ideal mix for everybody. One has to definitely look at the risk profile of their investor. But very clearly penetration of equity at 5% is quite low. That can increase. Equity, as an asset class is known to preserve capital after inflation. Secondly, in terms of tax perspective it is quite well positioned asset category in India. But only thing is it comes with volatility, which is what worries people and volatility is quite significant. Globally, also the asset classes are virtually the same. The mixes may vary.

Japan may have a higher component of cash or fixed deposit with them where they are slightly more conservative, but don't forget that they are more of an ageing society. So the component of equity in India should go up and perhaps will go up. That may happen, but we are not recommending it can be a primary. Broadly around 30% of the savings of Indians or Asians is in equities. That will remain. It maybe plus/minus a few percentage points, but these are the five asset categories which will perhaps remain. They are globally so and it will remain in India.

Only thing is the biggest asset class, real estate in India is not very organized as of today, whereas in developed we have an opportunity to invest in real estate by way of Real Estate Investment Trust (REIT) and Real Estate Mutual Funds and some capital market related kind of vehicles, which is not available in India in a decent way as of today.

Q: One of the big problems and most of the HNIs face is tax management. So with respect to that what is it that you would advice?

A: I don't think tax management is a problem. If they are inclined towards equities, equity is the best positioned asset category in tax because if you hold equity asset for 12 months by way of equity or equity mutual fund, you get tax free. So, they have their own tax planning. They try to manage it. Real estate is a different asset class and that is accounted in a different way.