Indian investors are becoming fonder of structured products, as the country's wealth, and need for investment, grows exponentially, according to Singapore's DBS Bank.
Capgemini's World Wealth Report puts India amongst the top 10 countries in terms of total private wealth, with Shantanu Sengupta (pictured), head of consumer banking group at DBS Bank India, pointing that the aggregate wealth held by Indian High Net Worth Individuals (HNWIs) who have investible assets of SGD1 million (US$0.7m) or more is expected to grow at a compound annual growth rate (CAGR) of 27% in the next five years to about INR400tr (US$6.2trn).
"The wealth management landscape is on a sustained path of growth, given the India story - long-term economic prospects, positive demographics, rising income levels and current low penetration," Sengupta said. "In the current context, HNW customers in India are quite engaged with their banks regarding their wealth portfolios and are increasingly allocating more funds into their financial assets."
While being loyal to the brand, investors do evaluate service benchmarks, service or product, and their investments outweigh their savings, Sengupta noted, adding that investors explore "a wide array of mutual funds and alternative products".
"They are prolific with their relationship managers, and at the same time, they also want digital options," he said. "Customers also purchase insurance as an investment product besides seeing it as a legacy planning tool."
Last month, DBS launched a new digital platform for distributing insurance products in India, including investment-linked insurance products, via an open architecture approach that includes products from Tata AIA Life, Birla Sun Life and Aviva India Life.
"DBS offers protection plans, endowment plans and investment-linked insurance plans (ILPs). These plans are offered as options to customers based on their risk appetites," Sengupta said.
The move came in the context of new guidelines issued by the Insurance Regulatory and Development Authority of India (IRDA) in 2015, allowing corporate agents including banks to partner with up to three insurers in each of the segment of life, general and health.
DBS launched its 'Digibank' proposition in India in April of 2016, becoming the country's first mobile-only bank, adding over a million customers to date. The growth in channel share of retail products sold digitally had grown to six percentage points on an annual basis to 43%, the bank reported in its 2016 annual results.
Structured products are available to customers on a referral basis, and Indian resident customers are eligible to participate in these offerings, according to Sengupta. "We partner a number of reputable issuers who can offer tailored structured products to customers," Sengupta said. "These structured product offerings are principal protected and the issuers also have high credit rating."
Structured products befit the segment of customers who wish to diversify their portfolio as a wealth creation tool, he said. The product's flexibility allows it to induce stability into their portfolio and make positive returns even during a downward market movement, while many structures come with a capital protection theme, seeking to limit losses and return at least the capital.
"In India, structured notes with debt securities and equity derivative exposure are popular. These are also available in the mutual fund format as hybrid fixed term funds," Sengupta said. "Besides the need for protection, it's also the need for alternative ways of investing in stocks that is driving the growth of these products. Conservative investors, who typically bought relief bonds issued by the Reserve Bank of India, have developed a liking for structured products."
DBS is amongst the biggest structured products distributors in the Asia-Pacific region, with over 3,800 products sold, according to the SRP database, including some 500 tranches so far this year.
The bank reported strong wealth management performance in Q1. Income in the Consumer Banking / Wealth Management (CB/WM) division rose 13% to SG$1.16bn. The increase was across all product segments and led by double-digit percentage growth in investment products, DBS noted. The division includes services related to current and savings accounts, fixed deposits, loans and home finance, cards, payments, investment and insurance products. Division pre-tax profit rose 22% to SG$534m, on revenue of SG$1.16bn, up 7% YoY.
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