Indian HNIs build portfolios around clear goals and risk budgets, split capital into “safety–growth–opportunistic” buckets, and use professional vehicles (PMS, AIFs), tax-aware structures, and strict governance. Liquidity tiers, periodic rebalancing, and manager diversification are non-negotiable.
Why this matters
When your investable surplus crosses a few crores, the problem shifts from “what to buy” to “how to design the whole system.” This guide explains how India’s high-net-worth investors (HNIs) structure portfolios—what they own, why they own it, how they size risks, and how they keep the plan on track.
The HNI blueprint: principles first
1) Goals → Buckets
Match money to mission, not to headlines.
- Preserve (1–3 years of needs): T-Bills, G-secs/TMFs, high-grade bonds.
- Grow (multi-year wealth): equity funds/direct equities, PMS, global index funds.
- Opportunistic/Alpha (satellite): AIF Cat II/III, special situations, private credit.
Typical glidepath: 30–50% Preserve, 40–60% Grow, up to 20% Opportunistic (illustrative).
2) Risk budgeting (not return chasing)
Define how much portfolio volatility and drawdown you can tolerate.
- Max drawdown budget (policy): e.g., “not more than 15% peak-to-trough at total-portfolio level.”
- Risk contribution: cap any single asset/manager to ≤10–15% of portfolio risk.
- Useful formulas
- CAGR ≈ (EndingBeginning)1/n−1(\frac{\text{Ending}}{\text{Beginning}})^{1/n}-1
- Sharpe =Rp−Rfσp=\frac{R_p-R_f}{\sigma_p}
- Sortino =Rp−Rfσdown=\frac{R_p-R_f}{\sigma_{\text{down}}}
3) Liquidity tiers
Keep cash and T+1 assets for routine spending and tactical rebalancing; accept lock-ins only where payoff justifies illiquidity (AIFs/PE/real estate).
4) Tax-aware design
- Dividends are taxable in your hands; TDS generally applies beyond a threshold (raised to ₹10,000 for FY25–26). (Income Tax India, ClearTax)
- Debt fund taxation changed from 1 April 2023: funds with ≤35% equity lose indexation; gains are treated as STCG at slab rates (Sec. 50AA). (AMFI India)
- Surcharge cap: On certain capital gains/dividend income, surcharge is capped at 15% (per Finance Bill 2025). Consult your CA for regime choice and set-offs. (India Budget)
5) Governance & reporting
Write an Investment Policy Statement (IPS): goals, ranges, rebalancing rules, risk/trading limits, and a review cadence (quarterly for dashboards, annual for strategy).
The instruments HNIs actually use
Core building blocks
- Direct equities & mutual funds (active + index) for long-term growth.
- G-secs/SDLs/TMFs for stability and tax-efficient fixed income (via target-maturity funds and gilt funds).
- Global exposure via the LRS: up to USD 250,000 per resident per FY for permissible investments. Use for US/EAFE index funds, global bonds, or manager mandates. (Reserve Bank of India)
Professional mandates
- PMS (Portfolio Management Services): Bespoke equity/ multi-asset mandates; SEBI-mandated minimum ₹50 lakh per client. Good for concentrated, style-consistent exposure and institutional execution. (investor.sebi.gov.in)
- AIFs (Alternative Investment Funds):
- Cat I/II/III across venture, private credit, long–short, etc.
- Minimum contribution typically ₹1 crore (₹25 lakh for certain employees/directors). Diligence the PPM, fees (1/10–2/20), hurdle, and high-water mark. (Securities and Exchange Board of India)
- Regulatory updates are ongoing (e.g., consultations on LVFs for accredited investors). (Securities and Exchange Board of India, The Economic Times)
A 7-step HNI portfolio process
- Map the family balance sheet
Liabilities, contingent needs, private business cash flows, and legacy assets (property, ESOPs). - Set spending and safety
Ring-fence 2–3 years of family expenses + large near-term goals in the Preserve bucket. - Choose allocation ranges (core–satellite)
Example ranges (illustrative):- Preserve 35–45% | Grow 40–55% | Opportunistic 0–20%
- Within Grow: India equity 60–75%, Global equity 25–40%
- Select vehicles
- Use index funds/ETFs to anchor beta at low cost.
- Add 1–3 PMS for active India equity styles (quality, value, small & mid-cap). (investor.sebi.gov.in)
- Use AIF Cat II/III for private credit or long–short to diversify economic/market cycles. (Securities and Exchange Board of India)
- Entity & tax structure
Where relevant, evaluate HUF, private trust, or holding company for governance and succession; align with your CA and estate lawyer. (See our articles on Family Trusts and Will vs Trust.) - Implement smartly
- Phasing: Use STPs/SIPs for equity deployment; lump-sum for G-secs/TMFs when yields are attractive.
- Trade rules: Max 10% per single issuer in debt; avoid over-concentration to one manager/theme.
- Monitor & rebalance
- Rebalancing band: e.g., ±20% of each sleeve’s target (a 50% sleeve rebalances at 40–60%).
- Risk triggers: If portfolio drawdown breaches your IPS limit (say 12%), auto-rebalance to safety; if a manager underperforms its style index by >5–7% for 4–6 quarters, review mandate.
Worked example (illustrative only)
Family corpus ₹20 crore; spending ₹60 lakh/year; high risk capacity, 12–15 year horizon.
| Bucket | Allocation | Instruments | Liquidity |
|---|---|---|---|
| Preserve (40%) | ₹8.0 cr | 1–5Y G-Sec/SDL ladder via TMFs; T-Bills; Overnight/Liquid funds | T+1 |
| Grow – India (36%) | ₹7.2 cr | Nifty/Sensex index (core), flexi-cap fund, 1–2 PMS styles (quality + small/mid) | T+2; PMS per contract |
| Grow – Global (12%) | ₹2.4 cr | LRS to US total market + global ex-US index; IG bond ETF | LRS settlement |
| Opportunistic (12%) | ₹2.4 cr | AIF Cat II private credit (secured); AIF Cat III long–short equity | As per PPM |
Sizing rule of thumb:
Position size wiw_i ≈ Risk Budgetiσi\frac{\text{Risk Budget}_i}{\sigma_i} ÷ ∑Risk Budgetjσj\sum \frac{\text{Risk Budget}_j}{\sigma_j} (equalize risk contributions, not rupees).
Downside guard: Budget max portfolio drawdown at 15%; hedge with protective Nifty puts if needed (cost <1% p.a. acceptable in volatile years).
Due-diligence checklist (PMS/AIF)
- People: team tenure, style purity, key-man risk.
- Process: idea generation → portfolio construction → sell discipline.
- Risk: drawdown history, gross/net exposures (for Cat III), liquidity of holdings.
- Costs: fixed + performance (hurdle, high-water mark).
- Operations: audits, fund admin, custody, side-pockets.
- Fit: correlation with your core equity/bond sleeves.
Regulatory minimums at a glance
• PMS: ₹50 lakh per client. (investor.sebi.gov.in)
• AIFs: typically ₹1 crore per investor (₹25 lakh for certain employees/directors). Watch for LVF/accredited-only scheme updates. (Securities and Exchange Board of India)
• LRS: USD 250,000 per resident per FY for permitted overseas investments. (Reserve Bank of India)
Rebalancing that HNIs actually use
- Calendar + Band Hybrid: Review quarterly; trade only when outside bands.
- Cash-flow aware: Direct dividends/interest/SIP flows to underweight sleeves to minimize tax friction.
- Tax lots: Harvest losses to offset gains; be mindful of holding periods and Sec. 50AA for post-Apr-2023 “specified” debt funds. (AMFI India)
Featured Q&A
Q1. PMS, AIF, or mutual funds—what’s right for me?
Use mutual funds/ETFs for efficient beta, add PMS for India alpha with transparency (₹50 lakh min), and consider AIFs for alternative premia/illiquidity carry if your IPS allows. Mix, don’t swap all for one. (investor.sebi.gov.in, Securities and Exchange Board of India)
Q2. Do I really need international assets?
Yes—global equities dampen home-bias risk and add currency diversification. Use LRS judiciously and keep reporting/TCS in mind. (Reserve Bank of India)
Q3. How many outside managers is optimal?
Often 2–3 PMS and 1–2 AIFs cover style/strategy breadth without diluting accountability.
Q4. What about dividends and TDS changes in FY25–26?
Dividends are taxable at slab; TDS now generally kicks in beyond ₹10,000 per company per FY (effective FY25–26). Confirm PAN/KYC to avoid higher TDS. (Income Tax India, ClearTax)
Q5. What performance metric should I obsess over?
Prefer risk-adjusted and downside metrics (Sortino, drawdown, hit ratio) over raw CAGR. Track whether each sleeve did its job (e.g., AIF Cat III dampened drawdowns when Nifty fell).
Common pitfalls to avoid
- Over-concentration in one theme/manager/market cap.
- Illiquidity creep: too much in locked products vs family cash needs.
- Tax blind-spots: post-2023 debt fund rules (Sec. 50AA), surcharge treatment on gains/dividends. (AMFI India, India Budget)
- No IPS: decisions drift with markets.
Internal links to explore next
- Diversification: The Only Free Lunch in Finance
- Tactical Asset Allocation Explained
- What is Rebalancing and Why It Matters
- What is a PMS (Portfolio Management Service)?
- Global Diversification for NRIs and Residents
Key takeaways
- Start with a written IPS, not a list of funds.
- Bucket by purpose, fund by risk budget, and rebalance by bands.
- Use professional mandates (PMS/AIF) where they add distinct exposure.
- Stay current on India-specific tax and regulatory rules before allocating. (investor.sebi.gov.in, Securities and Exchange Board of India, AMFI India, Reserve Bank of India, India Budget)