Last fortnight, Dezerv raised $35M as the Indian wealth management industry undergoes a renaissance driven by exploding wealth.

Saving for a Rainy Day

The year was 1843. 

The British Raj established the first savings bank in Calcutta, formalizing the idea of allowing third-party institutions and professionals to manage your wealth. Similar banks would be set up in other districts across India. By the end of the century, it would be taken over by the post office savings bank as the primary avenue of government-owned savings institutions.

The private market was not far behind. The establishment of the Bombay Stock Exchange in 1875 allowed access to equity investments—a high-risk, high-reward, private market-driven alternative to growing people’s wealth. 

A few years later, the Oudh Commercial Bank was set up in 1881 as India’s first private bank run by an Indian board of directors.

However, these avenues remained the domain of a niche segment of the population. For most of the general population, wealth was concentrated in physical assets, including real estate and gold.

1943 marked the first efforts to bring the idea of institutionally managed savings to the mainstream. The National Savings Central Bureau was founded in Shimla by the British Raj, with a twofold objective. 

One, counter the inflationary pressure induced by the Second World War by shifting consumption to savings. Two, to use the saved funds to finance the Second World War. Savings were seen as an instrument to fulfil institutional objectives.

The initiative failed for obvious reasons. The Indian populace did not want to finance someone else’s war.

The initiative was reorganized just five years later, in 1948 by the government of the newly independent India, with the establishment of the National Savings Organization (NSO).

But the underlying thesis remained the same. Savings were considered a force for national development. In the words of India’s first prime minister, Jawaharlal Nehru, 

“Every person who participates in this campaign and adds to the savings not only helps fulfil our Second Five Year Plan but also becomes a sharer in it.”

This philosophy would nationalise the then-existing 14 largest commercial banks in the late 1960s.  

Parallelly, in 1963, the government of India brought capital markets into the mainstream through the Unit Trust of India (UTI), the country’s first mutual fund. A small class of professional fund managers was created to help small investors enter the capital markets by pooling their funds and making investment and risk diversification decisions on their behalf.

With the banks, the UTI, and the post office savings bank under its wing, the government became the de facto wealth manager of the time.

Under its ambit, from the 1970s to the 1980s, India’s savings rate doubled from 16 percent of its GDP to 35 percent, driven mainly by the banking and post office savings system.

UTI’s role as a facilitator of savings and investments remained negligible. With an AUM of only 52 Cr in 1981, it contributed 0.19% to domestic savings.  

To correct this situation, the government allowed opening up the mutual fund industry to PSUs, with SBI being the first bank in the country to establish a fund in 1987, followed by Canara Bank, Punjab National Bank, the Indian Bank & the Bank of Baroda. LIC became the first non-bank PSU to establish a fund in 1989.

The following decade saw the industry's AUM grow by ~120x to 7,500 Cr. Indians were becoming comfortable investing beyond Gold and Real Estate.

But that was just the beginning.

Unleashing Animal Spirits

The economic reforms and liberalization of 1991 unleashed the economy's animal spirits. 

The growth rate increased, the private sector took off, incomes and wealth grew, and the effects spilt over to the financial markets.

The license raj ended, and private players entered the market. Banking licenses were allotted, and Axis, HDFC, and ICICI entered the space. The mutual fund industry was also deregulated. 

In parallel, the mutual fund industry also opened up, with the erstwhile Kothari Pioneer (now merged with Franklin Templeton) being the first private fund established in the country in 1993. 

Established by Vivek Reddy, who did a short stint in the US as a consultant before coming back to India, & his childhood friend, Shyam Kothari, whose family owned an NBFC, Kothari Pioneer sought to do things differently to challenge the government-owned stalwarts. 

It became the first fund to disclose Net Asset Values (NAV) daily. Till then, as a standard practice, funds are used to disclose Net Asset Values (NAVs) once a month. It also promised and delivered redemptions in three days. 

But its most significant disruption was the launch of the systematic investment plan (SIP) - which, over the years, transformed the mutual fund industry. 

Other players like Aditya Birla and Tata entered. Banks like HDFC also opened up mutual fund wings. By the end of the decade, private players accounted for 10% of the total AUM, 80% of the new inflows within the mutual fund industry. 

The increased competition in the space led to an infusion of new products, services, technology, and choices. In addition to sourcing deposits and issuing lending, banks also became distributors for mutual funds and insurance, earning hefty commissions in the process.

The National Stock Exchange was established in 1994, bringing innovations like screen-based electronic trading. It eventually commenced derivatives trading in 2000.

Peripheral entities to serve the newly exploded financial space started emerging, from central depositories to credit agencies.

Within it all emerged a whitespace.

A small but significant subset of Indians were getting richer. A savings culture had been firmly established in the previous half-century, but wealth was still concentrated in physical assets. The confusing array of distributor-pushed products further exacerbated a limited understanding of the risk-return spectrum across asset classes.

The era of government-led wealth management was over. A new generation of professional wealth managers and advisors was rising to replace it. 

Scam Erosion

The early 2000s marked a period of robust economic growth in India, with GDP growth averaging around 7-8% per year.

By 2010, India's per capita income had nearly tripled compared to the early 2000s, leading to rising retail participation in the financial markets.

The IT and service sectors witnessed exponential growth, contributing significantly to India's GDP.

Companies like Infosys, Wipro, and Tata Consultancy Services (TCS) became global IT giants, creating a new class of affluent professionals. This demographic sought professional wealth management services to optimize their investment portfolios and plan for their financial future.

At the same time, the Indian stock market experienced significant growth, with the BSE Sensex increasing from around 3,000 points in early 2000 to nearly 21,000 points by the end of 2010.

This dramatic rise attracted many new retail investors looking to capitalize on the booming market, but this was only possible with regulation. Confidence in the stock market took a hit in the 90s.

The Harshad Mehta scam, which came to light in 1992, involved manipulating stock prices using illegal bank receipts. Although the scam occurred in the early 1990s, its repercussions were felt well into the 2000s as it prompted significant regulatory changes.

The country’s young regulator had a considerable role in restoring confidence and improving access for retail investors. The Securities and Exchange Board of India (SEBI) was established 4 years earlier in 1988 and given statutory powers in 1992 through the SEBI Act.

In the early 2000s, the stock market was hit by another major scandal involving stockbroker Ketan Parekh. Parekh manipulated stock prices through circular trading and fictitious bank accounts.

SEBI implemented several reforms to enhance market integrity and investor confidence in response to these scandals.SEBI introduced the T+2 (transaction plus two days) settlement cycle to reduce settlement risk, which was further reduced to T+1 in subsequent years.

Companies were required to adhere to stricter disclosure norms to ensure transparency.

The Investor Education and Protection Fund (IEPF) was established to educate investors and protect their interests. 

The early 2000s also saw significant technological advancements transforming the wealth management industry. The digitization of the stock market began with the introduction of the National Stock Exchange (NSE) in the mid-1990s, which became fully electronic by the early 2000s.

The advent of online trading platforms like ICICI Direct and Sharekhan made it easier for retail investors to participate in the market. Additionally, wealth managers began using technology to offer personalized financial planning and investment advisory services, making the process more efficient and accessible.

Life Insurance Corporation of India (LIC) continued to dominate the insurance market, with its policies becoming a popular investment option. 

LIC's policies, offering a blend of insurance coverage and investment returns, appealed to risk-averse investors. The corporation's extensive network of agents ensured widespread reach and trust among the masses.

Banks also played a pivotal role in the wealth management industry, with relationship managers (RMs) promoting investment products to their clients. These RMs were often incentivized through commissions to sell specific products, which sometimes led to prioritising high-commission products over those that best suited the client's needs. 

The period from 2000 to 2010 saw a shift in the dynamics between distributors and manufacturers of financial products. SEBI's cap on commissions that distributors could earn led to a reduction in the mis-selling of products. 

The decade was the foundation for building investor trust and gaining confidence after the scams. The rise of a new affluent class created a fertile environment for the industry to flourish.

Fortune Across the Pyramid

India's wealth management industry has shown significant growth potential, with projections indicating a robust expansion trajectory. 

By the end of the first decade of the 2000s, India ranked 12th among millionaire households, with 150,000. It was one of four countries, including the UK, US, and China, with the most significant absolute gains in wealth in the last decade.

This was driven by private wealth, which grew more than double the global average in the Asia-Pacific region. India experienced exceptional growth of 21.6% in AUM, while the Pacific region reported the highest growth rate in family wealth worldwide during 2010.

The industry was expected to grow at an annual rate of 12-15%, potentially reaching a market size of $1 trillion by 2025. Various factors, including the increasing affluence of the Indian population, economic reforms, and a greater awareness of financial planning and wealth management services, drive this growth.

The market can be segmented by income levels, with Ultra-High-Net-Worth Individuals (UHNIs) and High-Net-Worth Individuals (HNIs) representing a significant portion of the wealth management market. 

Between 2000 and 2010, India's UHNI segment (over $30 million in assets) grew from 7,500 to over 9,000 and was expected to hold over $700 billion by 2025.

HNIs (assets between $1 million and $30 million) increased from 150,000 to 250,000, driven by expanding sectors like IT and pharmaceuticals. The high-income group (earning $100,000 to $1 million annually) saw more investment in mutual funds, equities, and real estate, boosting the wealth management industry. The middle-income segment (earning $10,000 to $100,000 annually) turned more to wealth management services, steadily increasing their investable assets and driving industry growth.

Over the years, the Indian wealth management market witnessed diversification in terms of asset classes. Equity investments gained prominence, with the number of retail investors in the stock market increasing significantly. Mutual funds also became a popular investment choice, with assets under management (AUM) growing from about ₹1 trillion in 2000 to over ₹7 trillion in 10 years.

Traditionally, real estate is a favoured asset class that attracts investments, particularly in urban areas. Additionally, there has been a growing interest in alternative investments such as private equity, hedge funds, and commodities.

As a result, the wealth management industry in India experienced a substantial transformation. The market expanded considerably, driven by economic growth, increasing income levels, and greater financial awareness among the population. 

The wealth management industry was estimated to be worth approximately $200 billion, reflecting a compound annual growth rate (CAGR) of around 15%. This rapid growth set the stage for the industry's continued expansion, with projections indicating that the market could reach $1 trillion by 2025.

India was growing both aspirationally and in wealth, but a massive storm was coming.

Winning Trust

The 2008 global financial crisis sent shockwaves through capital markets worldwide, prompting significant transformations in the wealth management space. 

This event revealed that costly active funds were grossly underperforming cheaper index funds, leading to a shift away from costly active mutual funds into cheap index funds and exchange-traded funds (ETFs). 

After noticing this, investors shifted from active funds to passive or robo-advisors to reduce commissions. 2008 was the inflexion point for the US wealth management industry, and the Indian market was no different.

Investors in India also saw diminished overall returns, triggering a shift towards more cost-effective and transparent investment solutions.

One pivotal change post-crisis was the emergence of a buyer's market, which reduced the total expense ratio and commissions charged by distributors. 

SEBI took decisive steps to bolster investor confidence in Mutual Funds. In 2009, SEBI eliminated entry loads on mutual funds, compelling distributors to overhaul their business models. 

This move fundamentally altered the value chain, emphasising manufacturers more while reducing costs for investors by approximately 0.8% on the same AUM. These regulatory changes also mandated standardization of Mutual Fund schemes and enhanced disclosure norms to safeguard investor interests. 

The shift towards lower-cost products gained momentum, attracting a broader spectrum of investors and paving the way for innovative wealth management models to flourish. 

Unlike the traditional one-size-fits-all approach, IFAs, family offices, and boutique advisors prioritized transparency, client education, and bespoke financial solutions tailored to individual goals and values.

It also reflected a behavioural shift among the investors, who now see themselves as custodians rather than consumers of wealth.

UHNIs and family offices’ wealth are not consumed by them in their lifetime; straddling generations makes the family principals custodians of wealth. As custodians, they take a very different view of their portfolio from consumers of wealth. 

A fee-based wealth advisory model is aligned with this custodian view.

SEBI continued to refine regulations to better differentiate between investment advisors and distributors, introducing Registered Investment Advisor norms in 2013. 

This regulatory evolution mirrored a growing demand for personalized advisory services amidst India's evolving economic and regulatory landscape. 

However, despite these advancements, access to such services remained predominantly limited to HNIs and clients in metropolitan areas. 

This highlighted a significant market gap that was yet to be addressed.

Mutual Funds Sahi Hai

Bringing middle-income households into the mutual fund ambit was essential and would require a fundamental shift in the product proposition.

Reducing jargon, enhancing investor awareness across all product categories and simplifying onboarding processes were vital to targeting such households. A confluence of factors would fuel the growth in mutual fund penetration.

AMCs have spearheaded product innovations such as SIPs and AIF, catering specifically to middle-income households' preferences and risk appetites.

SIPs, in particular, have emerged as popular choices due to their affordability and disciplined investment approach.

In just the first quarter of FY20, there was an inflow of INR 24 lakh Cr through SIP from INR 7 lakh Cr in 2013, nearly 65% of the inflows into equity funds for the same period. The average ticket size of SIPs stood at Rs 3,070 in FY’19, with the total number of SIP accounts at 2.7 crores.

The AMFI played a pivotal role by increasing consumer awareness through its iconic "Mutual Fund Sahi Hai" campaign, which successfully onboarded 50 lakh new customers within 12 months. This campaign demystified mutual funds and instilled confidence among potential investors.

Distribution got resolved with digital coming to the fore and becoming mainstream, thanks to Jio revolution.

With these factors coming into play, retail investor participation took off. It increased from 48% of the overall AUM in 2014 to 58% in 2019, translating to INR 13 Tn. Further, retail investors did not belong to the top 15 cities only; instead, it was a nationwide phenomenon, and the results were evident.

The Beyond 15 cities saw their contribution to AUM rise from ~13% in FY’13 to ~25% in FY’19. SEBI’s recent relabeling of regions from Top 15 and Beyond 15 to Top 30 and Beyond 30 reflects this growth. Beyond 30 registered an even faster growth than Beyond 15, indicating the democratization of Mutual Funds.

Corporations also participated aggressively in this rally, as they could generate meaningfully higher returns through investments in liquid funds compared to other traditional instruments, such as short-term fixed deposits.

As of March 2019, the quarterly average AuM of corporates in liquid funds stood at ~Rs 3.5 lakh crore, which boosts corporate profitability by Rs 1,750-3,500 crore at 0.5-1% return. A price-earnings ratio of ~28 for BSE in June 2019 translates to a valuation boost of INR 50,000 crore to INR 100,000 crore.

The industry, however, experienced slower growth in the second half of FY’19, led by the NBFC liquidity crisis in the latter half of 2018 sparked by the IL&FS default. This crisis brought select funds with high exposure to short-term papers of IL&FS and other NBFCs under the spotlight. The subsequent extension of maturities of FMPs by select fund houses due to technical defaults intensified the spotlight on the sector.

However, industry stakeholders were prompt in taking corrective actions.

Furthermore, introducing new investment avenues, such as Gold Bonds and ETFs has diversified the mutual fund market.

The government introduced gold bonds in 2018 to reduce the fiscal deficit and enhancing market liquidity by converting physical gold into a financial instrument. 

Similarly, ETFs started gaining prominence after 2017, to provide investors with a convenient way to invest in diversified portfolios of securities, bonds, commodities, etc., through a single financial instrument.

The diversification aligned with India's vision to achieve an AUM target of 100 trillion, positioning the country as a robust player in the global wealth management arena

Saving is Passe

​​India was finally beginning to turn from a nation of savers into one of investors.

Historically, Indians invested their savings in FDs, gold, and real estate. 

Thus, for all practical purposes, the initial players were the large banks, jewellers, and real estate companies. This trend was reflected in India's only 1,300 Registered Investment Advisors (RIAs). RIAs are financial professional firms that advise clients on securities investments and may manage their financial portfolios.

However, the tides changed, and COVID boosted them. 

Indians increasingly allocate their savings to mutual, insurance, and pension funds. The RBI governor recently said, ' Savings are shifting from bank FDs to MFs’.

Although India's percentage of wealthy individuals was small relative to developed markets, it has the second-highest number of high-net-worth individuals (HNIs) among the BRICS nations. 

Hence, it was well-positioned as an attractive destination for wealth managers. 

India’s HNI population was expected to grow by 75% from 3.5 Lakhs in 2020 to 6.1 Lakhs in 2025. UHNIs were expected to increase by 39% from 13,637 in 2021 to 19,006 in 2026. India’s wealth was expected to grow by 10% annually and reach $5.5 Tn by 2025. 

The financialisation of savings coupled with the growth in rich Indians saw the emergence of several new-age wealth tech platforms ranging from discount brokerages (Zerodha, Upstox, Groww, Dhan), which offer ease and convenience for stock trading to stock advisory platforms (ETmoney, Liquide, Univest, Kuvera, Indmoney, Scripbox) and even family office platforms (Waterfield, Premjiinvest, Catamaran ventures) that are trying to bring a degree of professionalism and institutionalization that hasn’t so far existed in the world of wealth management.

A new generation of digitally native millennials was rapidly growing. 

This user base has enabled the emergence of wealth tech players who are disrupting the market for incumbent players. These users want a high-tech banking experience that includes ecosystem integration, mobile apps, goal-based personalized financial management, product comparison tools, and digital payment mechanisms during their purchasing journey. 

Furthermore, they prefer gamified dashboards and recommendations over social media, and it is no surprise that millennials account for 70% of customers of new fintech platforms in the wealth management space. 

Of the estimated 4 Mn people who use some version of wealth tech platforms, the majority are millennials. By 2025, the number of investors in wealth tech products was expected to triple to 12 Mn. 

They are also increasingly looking to diversify their investment portfolios, as seen by the emergence of popular platforms like Grip Invest, Jiraf and Wint Wealth., which allow investors to dabble in corporate bonds, invoice discounting or startup investing.

This presents a golden opportunity for new tech-enabled wealth tech players to emerge.

Alternative Wealth

With the rise in digital adoption in India and increased awareness of retail investors, new trends have emerged in the investment landscape here. 

There can be no one-size-fits-all approach to investing, and retail investors are looking to diversify their portfolios to get better risk-reward and inflation-beating returns.

This has led to the rise of alternative investments in India, specifically in the last few years. Some of these are investments in startup equity (private equity and venture capital), various debt instruments, and real estate investments like REITs and InvITs, which only the big institutional investors used to use. 

Fractional ownership makes it easier for investors to participate in high-ticket-size investments, as they can own a fraction of an asset like startup equity or commercial real estate. Other alternative investment instruments gaining popularity include cryptocurrencies, peer-to-peer lending, commercial real estate, lease investing, and inventory financing. 

The pandemic saw retail investors enter the market in huge numbers for the first time. With the help of technology and distribution, some platforms like Tap Invest, Jiraaf, TradeCred, Lendbox,  set out to bring these alternative investment options to the masses.

These alternative investment products are attractive to investors because they are not dependent on market fluctuations and have a higher return rate than traditional instruments.

The Indian mutual fund industry crossed the ₹50-lakh crore mark in December 2023. But HNIs aren’t just investing in traditional instruments like mutual funds, bonds, and equities—they have been investing in “Alternative Investment Funds” or AIFs. 

These AIFs have grown at a CAGR of 34.5% over a five-year period (from September 2018 to September 2023), whereas over the same period, mutual fund assets have increased by more than 15%.

An AIF is a privately pooled investment fund established in India that collects funds from sophisticated Indian and foreign investors and invests according to a defined policy. 

The funds pooled here can be invested in various avenues and asset classes without restrictive mandates. The advantage they have here is mutual funds have restrictions on the maximum weightage that can be given to a stock or sector, choice of market capitalisation, and others 

Only 50-55% of India’s wealth management market is currently under professional management. With the rise of high-net-worth and ultra-high-net-worth segments in India, startups want to ensure they get a portion of this pie. 

Compared to traditional relationship managers, tech platforms can offer customers more personalized and data-driven recommendations. This led to many wealth tech startups entering the digital wealth management space, like Dezerv, Centricit and Wealthy. 

With time, investors started gaining confidence in these alternative investment platforms, particularly after their capital was returned along with interest. The increase in alternate investment instruments also meant that a few products might have certain regulatory loopholes. 

The investor now has the onus of being aware that the high return comes with a higher risk, which the investor bears when defaults happen. 

As they say, do your due diligence.

Retail Wealth Creation

It was only since COVID-19 that we saw Domestic Institutional investors surpass foreign institutional investors in daily net investment.

Today, India is ready for disruption as most of India’s wealth advice and management have come from informal, fragmented small players or informal investment pockets.

The accumulation of wealth in any nationwide success has four pillars: projected growth of GDP, large increase in domestic investors' willingness to invest, growth in wealth-regulated entities and advisors, and process ease with technology and regulations.

India’s projected GDP growth of 6-8% over the next 20 years is important for the wealth industry. While overall wealth is seized to grow, per-capita growth is essential for consistent wealth creation for the middle class.

With more young consumers and high salary and income levels, India’s spending and purchasing power are set to increase multi-fold, leading to high GDP levels in the coming years.

It’s not that India's willingness to invest was lacking pre-COVID; it’s just that they invested in different asset classes that can usually never be tracked and are known to be unaccounted for. 

While India’s total wealth is possibly more than projected, we invested differently pre-covid.

Post-COVID, India’s willingness to invest has grown drastically in tokenised assets with high levels of transparency—mutual funds, stocks, and more. 

Demat accounts grew from 2.8 crores in 2017 to 14 crores in 2024.

Among this unique group, retail investors have also grown to be 4cr+. In recent months, retail flows in stock markets have surpassed institutional flows, signifying confidence and optimism in stock investing.

Pertinent to this, SIP inflow in India has taken over, suggesting India's affinity towards passive investment styles rather than investing directly in the markets. With more investable surplus and higher income levels, the growth of SIPs will continue to hit a record high.

The bedrock of any nation is organizations and businesses that can enable and help consumer sentiments into reality. Wealth businesses in India are still in their early innings compared to any global counterpart.

According to SEBI, only 44 Asset management companies, 978 Research investment advisors, 441 portfolio managers, and 1366 research analysts have regulations for a country of 1.4 billion! 

To put in global asset management companies’ perspective, India’s largest AMC SBI MF is ranked 183rd globally concerning AUM. It’s 0.8% of the largest asset manager in the world, Blackrock. 

The base is low, signifying India's immense underpenetration and potential for future growth.

The ease of letting customers and businesses invest in India comes from technological companies that have erupted over the last 6-8 years and the rate at which the regulators help consumers invest wisely and businesses assist.

As various asset classes grow, the government's push to tokenize all assets will become a reality. This will ensure all wealth, including real estate, gold, commodities, and locked assets after death, is properly accounted for, revealing the true wealth of India to consumers and the government.

While the confluence of the four pillars is essential for it to take off, wealth is less of a technology problem in modern-day India and more of a trust business.

Indian institutions have over 20 years of consistent growth ahead of them, and trust will ensure we continue to grow in transparent assets under management. Startups will play a key role in this explosion as wealth and technology grow rapidly.

The golden era of allocating savings wisely to get optimal returns based on risk preference is here.

Writing: Keshav, Ajeet, Ritika, Shreyas, Shreyans, Varun and Aviral Design: Omkar and Chandan