India’s stock market capitalisation is nearing Rs 147 trillion, of which the assets being managed by equity mutual funds have topped Rs 8.5 trillion. This means equity mutual funds now account for 5.7 percent, an all-time high.
Clearly, retail investors are hoping to ride the market wave, thus giving rise to new avenues which can offer them maximum bang for the buck.
This is exactly the sentiment that Robo Advisory funds hope to exploit.
So, what exactly is a ‘Robo Advisory’ and how does it work?
Robo-advisors are digital platforms or apps which offer automated, algorithm-driven financial planning services with negligible human interference. Talk about removing the emotional aspect of investing!
A typical robo-advisor collects information from clients about their goals or investment objectives, risk profile, investible surplus and so on, analyses it according to hundreds and thousands of pre-defined parameters and offers tailor-made solutions-all in a matter of minutes.
Post the initial asset allocation, robo services also continue to monitor the health of the portfolio and suggest changes.
In many ways, these companies can be called the modern face of investing. They offer customised goal-based investing platforms, zero or almost nil commission models, 24x7 connectivity and transparency for ticket sizes as small as Rs 500.
Many of them offer institutional quality analytics, which has only been available to high networth individuals till now.
The process has even been called “easier than signing up for Facebook”.
Rohit Paul Mascarenhas, an investor with ‘scripbox’, says he got interested by the quality of research and the suggestions on funds, but was hooked by the hassle free process.
While robo advisors are still fledgling in India, they seem to be gaining quite a bit of traction across the world. Vanguard’s robo platform crossed $100 billion in assets under management (AUM) earlier this year. Betterment, Wealthfront and others collectively managed as much.
Back home, the key players seem quite focused on the growth potential. In a country with an ever expanding middle class, the need for cost effective, customised solutions is also exploding.
Subramanya SV of Fisdom, a digital investment platform with over 60,000 customers, says digital advisors who now account for 5 percent of the market could see their footprint expanding to 25-30 percent in mere five years.
BI Intelligence estimates that the Asia-Pacific region will record $2.4 trillion in robo-advisory assets under management by 2020.
Sharad Singh of Invezta, a leader in direct mutual funds, says a few companies like theirs could well land-up in the top 200 companies over the next decade.
Many of the apps have shut down in their gestation periods – blame it on bad planning, cash flow mismanagement or even the lack of funding.
But the truth is, the sailing isn’t smooth for anyone who wants a piece of the pie and competition is flooding in from all corners.
This is not to suggest that independent financial planners are not fighting back. Platforms like NJ Fundz or Prudent offer online aggregator services for mutual fund distributors, independent financial advisors (IFA) and PFAs, giving them the top of the line tech advantage.
Can Indians who have traditionally relied on neighbourhood PFAs ever truly trust an automated platform? Could these digital warriors pose a threat to the established AMCs?
Taking the Vanguard example, even in India, the established players are building their own robo platforms. So, it certainly looks like a change that was indeed needed.Like with all major movements, which start small, struggle to gain traction and then suddenly snowball into your living room, robo advisors too are certainly shaking things up.