The Evolution of India's Wealth Management Ecosystem

Traditionally, wealth management in India was largely informal and unorganised.

It was primarily driven by family-run businesses and trust-based relationships. However, over the past few decades, the country has witnessed a significant transformation in its wealth management ecosystem.

The sector has become more formal and organised, driven by various factors such as economic growth, rising disposable incomes, and increasing awareness about financial planning and investment options.

Economic growth

One of the major factors driving the evolution of India’s wealth management ecosystem is the country’s economic growth.

India’s GDP has been growing at a steady pace over the past few decades, leading to an increase in the number of high-net-worth individuals (HNIs) and ultra-high-net-worth individuals (UHNIs) in the country.

According to a report by the Credit Suisse Research Institute, the number of HNIs in India is expected to reach 356,000 by 2023, while the number of UHNIs is expected to reach 18,000.

This growth in the number of HNIs and UHNIs has led to an increase in demand for wealth management services, resulting in the growth of the sector.

Rising disposable incomes

Another significant factor driving the evolution of India’s wealth management ecosystem is the rise in disposable incomes.

With increasing income levels, individuals have more disposable income at their disposal, which they can invest in various financial instruments.

According to a report by the Reserve Bank of India (RBI), the per capita income in India has increased by 8.6% annually between 2010 and 2018.

This rise in disposable incomes has led to an increase in demand for wealth management services, resulting in the growth of the sector.

Increasing awareness about financial planning and investment options

The increasing awareness about financial planning and investment options is also a key factor driving the evolution of India’s wealth management ecosystem.

With the growth of the internet and social media, individuals have access to a wide range of financial planning and investment options. This has led to an increase in awareness about the importance of financial planning and investment, resulting in an increase in demand for wealth management services.

According to a report by the National Securities Depository Limited (NSDL), the number of mutual fund folios in India increased from 6.5 crores in 2008 to 9.6 crores in 2018, indicating an increasing trend of investment in financial products.

Regulatory changes

Regulatory changes have also played a significant role in the evolution of India’s wealth management ecosystem.

Over the past few decades, the government and regulatory bodies have introduced various measures to formalise and organise the sector.

For example, the Securities and Exchange Board of India (SEBI) has introduced various regulations to protect the interests of investors and to promote fair and transparent practices in the sector.

SEBI has also introduced regulations for the registration and regulation of investment advisors, portfolio managers, and research analysts, which has helped to enhance the quality of services provided by the wealth management industry.

Furthermore, the Indian government has also introduced various tax incentives for individuals investing in financial products, which has further encouraged the growth of the sector.

Technology has also played a significant role in the evolution of India’s wealth management ecosystem.

With the increasing use of technology and digital platforms, wealth management firms have reached a wider audience and offered customised services to their clients.

Moreover, the use of technology has also led to greater operational efficiencies and cost savings for the firms, which has further helped in the growth of the sector.

Challenges

Despite the growth and evolution of India’s wealth management ecosystem, the sector still faces several challenges.

One of the major challenges is the lack of trust and confidence among investors in the sector.

According to a survey by the Association of Mutual Funds in India (AMFI), only 36% of households in India invest in financial products.

This lack of trust and confidence is partly due to individuals’ lack of financial literacy and transparency in the sector.

Another challenge faced by the sector is the lack of skilled and qualified professionals. With the growth of the sector, there is a need for skilled and qualified professionals to provide quality services to clients.

However, the lack of trained professionals has led to a shortage of skilled workforce in the sector, which has become a hindrance to the growth of the industry.

To overcome these challenges, it is important for the industry to focus on providing transparent and quality services, increasing financial literacy among individuals and investing in the development of a skilled workforce.

With the right approach and focus, the Indian wealth management industry has the potential to continue its growth trajectory and become a major player in the global wealth management landscape.