Portfolio Diversification: Passionate Investing Proves

Investments in art, classic cars, jewelry, watches and luxury handbags yield handsome returns for ultra-high net worth individuals

A growing number of Ultra High Net Worth Individuals (UHNWIs) from India are showing a keen interest in passionate investments, which primarily consist of art, jewelry, classic cars, watches and luxury handbags. Passionate investing can be a tool for diversification and an additional source of long-term investment returns.

Around 11% of the investable wealth of Indian UHNWIs, with a consolidated net worth of at least $30 million, is invested in passion investments compared to the global average of 16%, according to Knight Frank’s The Wealth Report 2022. . In fact, about 29% of Indian UHNWIs spent more on passion investments last year.

Invest with passion
In India, art was the preferred investment of UHNWIs, followed by jewellery, classic cars, watches and luxury handbags. In fact, luxury handbags and wine jumped from their first position to fifth and seventh, respectively. Globally, art tops the chart, followed by classic cars, jewelry, wine and watches. Art provided a return of 13% over a 12-month period ending in December 2021 and 75% over 10 years, according to the Knight Frank Luxury Investment Index. Wine recorded an additional 16% value on investment, while rare whiskey recorded a 9% increase in value over the 12-month period. However, over a 10-year period, rare whiskey continues to dominate the charts, rising by 428%.

Shishir Baijal, President and Managing Director of Knight Frank India, said, “Indian UHNWIs have a fantastic appreciation for passionate investing, where consideration goes beyond pure risk and return dynamics. With the world getting closer in this digital age, we expect this phenomenon to only grow stronger.

Overall, the report highlights that the sale of non-fungible tokens (NFTs) tied to digital artworks is attracting a lot of interest. According to Christie’s, 75% of those investing in the category were new collectors, with an average age of 42. With Asian collectors also pursuing NFTs, 2022 will see the continued rise of collectibles competing with art sales.

Although passion investing does not provide regular income, investors can benefit from capital appreciation. Investors should pay attention to the authenticity of collectibles and should be aware of them.

Immovable
Regarding residential real estate, the report indicates that 10% of Indian UHNWIs plan to buy a new house this year. Indian UHNWIs prefer to invest in properties in the domestic market, followed by the international markets of UK, UAE and USA. The report pointed out that on average, an Indian UHNWI owns 2.3 houses and 32% of Indian UHNWIs rented their second home in 2021.

The report states that 29% of the wealth of Indian UHNWIs is allocated to the purchase of primary and secondary residences. In addition, 22% of UHNWI’s investable wealth was allocated to the direct purchase of commercial property (including rental properties, offices, etc.) while 8% was allocated to the indirect purchase of commercial property ( including REITs, funds, etc.).