As the IPL 2024 auctions ended, 72 players were acquired for a total of 230.45 crore rupees by ten IPL teams. The auction also saw the highest-ever bid of Rs 24.75 crore for Australian fast bowler Mitchell Starc by the Kolkata Knight Riders (KKR) team. Though retail investors are not part of IPL and receiving crores, they also share an innocent wonder on how players will manage such large sums. Such queries serve the purpose of a cautionary measure to tackle newfound wealth, if with luck, shortly. Here's a breakdown of how to strategically invest crores when you come across such wealth in the future.
"People with a net worth of Rs 100 crore should invest exactly like people with a net worth of Rs 10 crore. They should invest in low-fee Nifty 50 index funds and other such products. They should avoid high-fee and exotic investments such as long-short Alternative Investment Funds (AIFs) that pay high commissions to distributors to hard sell to HNIs," Avinash Luthria, SEBI RIA at Fiduciaries said.
Even if you are an HNI you may have goals, maybe more expensive goals than a low net worth individual. Like how a wealthy IPL team owner buys players keeping some objectives in mind, align lump sum investments with your specific goals.
As an HNI Your ability to take risks is much higher but if the investment horizon is not considered linked with your specific goals, you end up losing much money or opportunities that cannot be bought with money.
The goals of the investor and the time gaps between the goals determine if one needs periodic income or just growth without regular payouts.
Investors should keep a portion of their same eyeing long-term goals with an aggressive investment stance and thus allocate a substantial portion to passive equity mutual funds. Of course, returns are given primacy here over safety.
"A large lumpsum investment in a Nifty 50 index fund can be staggered via a SIP or STP to manage one's emotions," Luthria says. Luthria says this because after 10 years, whether the person invested as a lump sum or in a staggered manner via STP will most likely be of little significance. However, STPs from low-risk funds to equity funds can manage the emotional aspect of investments.
For short-term goals demanding liquidity and safety, a portion of investment in low-risk instruments such as arbitrage and liquid funds is beneficial. As mutual funds these investments can be easily liquidated and their value won't go down immediately.
As mentioned above if you have structured an STP from arbitrage funds to an index fund this objective is already achieved. For this activate the STP feature on your liquid fund, or arbitrage fund and select another index fund as a target within the same fund house.
Also for periodic income, to diversify your investments, and to reduce risk in equity, one may allocate a portion of investment on Debt-Gilt Funds. Debt - Gilt funds have minimal default risk since they predominantly invest in bonds issued by Central or State governments, RBI or State government loans. But they will fluctuate based on interest rate movements in the economy.
"Real estate makes sense as a self-occupied residence but it is too much of an effort to manage as an investment," Luthria says. There are also options to co-own a property through REITs.
But tenant defaults, market collapses, and economic crises, necessitate careful research and assessment of property and location. Further investors in REITs should be mindful of market fluctuations, economic cycles, and interest rate changes, which can impact property values and profitability.
