High-net-worth individuals (HNIs) and ultra-high-net-worth individuals (UHNIs) are constantly exploring ways to diversify their portfolios and manage risk while aiming for higher returns. Mutual funds have become an essential component in achieving this delicate balance, even as these wealthier investors traditionally favored more complex investment vehicles like hedge funds and private equity.

Nisreen Mamaji, CFO and Founder of MoneyWorks, explains the stark differences in investment strategies between HNIs, UHNIs, and retail investors.

“Ultra HNIs and HNIs often hold portfolios that are more complex and customised, including assets like hedge funds, private equity, and global diversification strategies. These portfolios are designed to navigate market volatility, reflecting their higher risk tolerance,” she says.

In contrast, retail investors tend to focus on traditional options such as stocks, bonds, and mutual funds.

“Retail investors are more focused on asset preservation, tax efficiency, and estate planning,” Mamaji adds. “Their strategies are more passive, centered around long-term growth with lower risk.”

Despite these differences, Mamaji stresses that mutual funds offer universal benefits. “Mutual funds provide diversification, liquidity, and professionally managed exposure to various asset classes. For HNIs and UHNIs, these funds complement other investments, such as direct equity, portfolio management services (PMS), and alternative investment funds (AIFs),” she explains. “Tailored funds, like high-performing equity, debt, and hybrid funds, are particularly appealing to these investors.”

Varun Fatehpuria, Founder and CEO of Daulat Finvest, observes a significant shift in investment preferences among HNIs and UHNIs.

“A few years ago, these investors primarily gravitated towards PMS and AIFs due to the substantial investable assets required. But now, we see an increasing allocation to mutual funds,” he shares. “These products are well-regulated, easy to understand, cost-effective, and provide liquidity, making them a crucial part of a diversified portfolio.”

Fatehpuria points out that mutual funds are becoming more integral to wealthier investors’ asset allocation strategies.

“HNIs and UHNIs typically allocate 30% to 60% of their wealth to mutual funds, depending on the structure of their portfolio. This shift is due to the simplicity and efficiency mutual funds offer, compared to the complexity of direct equity and alternative assets,” he explains.

Mutual funds stand out because of their transparency, lower fee structure, and tax efficiency.

According to Fatehpuria, these factors make them particularly attractive for high-net-worth individuals. “I recommend allocating 25% to 40% of a portfolio to mutual funds, depending on liquidity needs and prevailing market conditions,” he advises.

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