The Rise of Family Offices in India

India's economy is on a solid trajectory, with robust investment demand, steady urban consumption, and increasing rural spending contributing to its growth. The nation's business landscape, especially its thriving startup ecosystem, has played a crucial role in driving this economic expansion. India is on track to become a $5 trillion economy by 2027, positioning itself as the third-largest in the world by GDP. This economic growth has opened up significant opportunities for wealth creation, particularly for India's family-owned businesses and new-age entrepreneurs. As a result, there has been a remarkable rise in the number of family offices in India.
 

What Are Family Offices?

Family offices are specialized entities that manage the wealth of affluent families, ensuring that their assets are preserved, grown, and passed on seamlessly to future generations. While the concept is not new in India, traditionally associated with legacy businesses and inter-generational wealth, the rise of first-generation wealth creators from the startup boom has brought a new dimension to family offices.

Family offices offer bespoke services beyond just wealth management. These include estate and succession planning, taxation, philanthropy, and sometimes even concierge services. They can be structured as single-family offices, catering to one family, or multi-family offices, serving multiple families.
 

Growth of Family Offices in India

The number of family offices in India has surged, with estimates suggesting around 300 family offices currently in operation—a sixfold increase from just 45 in 2018, according to a report by PwC. This growth is expected to continue, driven by the increasing number of high-net-worth individuals (HNIs) and ultra-HNIs, buoyed by India's strong economic prospects.
Family offices play a critical role in managing multigenerational wealth, ensuring that it is passed on smoothly without disrupting business dynamics. They provide top-notch legal services related to succession and taxation while aligning decisions with family values.
 

Taxation and Global Investment

Taxation is one of the most crucial services offered by family offices. They ensure that wealthy families comply with local tax laws while managing wealth across various jurisdictions in a tax-efficient manner. Many ultra-HNI family offices are established in Dubai and Singapore, benefiting from lower taxes and access to global markets.

India’s stringent controls over capital outflows have been a challenge for the global investment ambitions of the ultra-rich. However, the introduction of the Family Investment Fund (FIF) in GIFT City is expected to change this. Regulated by the International Financial Services Centres Authority (IFSCA), FIFs offer operational flexibility, allowing investments in international listed and unlisted securities, physical assets like bullion, and overseas real estate. This move could significantly ease the restrictions imposed by India’s Liberalised Remittance Scheme and Overseas Direct Investment guidelines under the Foreign Exchange Management Act, 1991.
 

Changing Investment Strategies

The rise of first-generation wealth creators from India's startup ecosystem is reshaping the investment strategies of family offices. While traditional asset classes like equities, real estate, and high-yield bonds remain popular, there is a growing interest in investing in Indian startups, particularly in the fintech sector. This not only diversifies the investment portfolio but also acts as a risk mitigation tool.

For legacy businesses, investing in startups is strategic, helping them adopt new business models driven by technology, thus bridging the gap between the new economy and the old. Additionally, it aligns with the preferences of the younger generation. While most startup investments by family offices are currently passive, there is increasing interest in making active investments, especially with the rise of unicorns and successful public listings of startups in India.

The Future of Family Offices in India

India's promising economic outlook bodes well for the future of family offices. These entities are evolving by embracing new technologies such as artificial intelligence and machine learning, which help in making strategic investments with a first-mover advantage, minimizing risk, and fulfilling the global ambitions of wealthy individuals. Furthermore, family offices are increasingly focusing on ensuring that the values of wealthy families, particularly in philanthropy and corporate social responsibility, are upheld as part of their holistic service offering.