Robo-advisory is a term that’s gaining popularity in the Indian investor community. It refers to algorithm-based financial platforms that have minimum human interaction, and instead rely mostly on software developed by the robo-advisor.
A number of financial experts and veterans have started their own robo-advisory firms, coming together with developers and coders to build these platforms. The service enables newbies and even experienced investors to rely on machine-based decision-making, rather than only depending upon a team. Think of this as an automated process where an algorithm uses your data (for instance, your age, regular income, monthly lifestyle expenses, long-term financial goals etc), and gives you investment suggestions.
As per a recent Statista report, Indian robo advisory firms currently have $20 million under investment, and are expected to grow at nearly 54% year-on-year, for the next 4 years. There are a number of independent robo-advisory firms in India, exclusively offering this service. Here are a few:
Scripbox
Algorithms are fast becoming savvy investment advisors
The firms says its strength lies in making the journey jargon-free for its users, attracting people who don’t have a financial background or have never invested before. The platform provides users with a filtered basket of mutual funds. The program, if automated, makes regular (daily, monthly, yearly) adjustments to your portfolio, based on your specific needs, such as tax-saving, long-term growth, risk-appetite. You can keep a check on your portfolio, or withdraw from a fund via your computer or smartphone. The program helps to exit and enter a fund in the most cost-efficient manner, in terms of transaction cost and capital gains tax.
According to the Scripbox COO and founder Sanjiv Singhal, “We use language that explains and associates financial concepts to daily lives. To give you an example, we refer to a certain type of fund based on the kind of purpose it may serve for an investor. So, Equity Linked Savings Scheme (ELSS) can be better understood as tax-saving funds. Similarly, debt funds can be better understood as short-term money.”
Finpeg
Founded by IIM Bangalore alumni, Finpeg hosts a bunch of strategies on its platform that cater to different customers based on their income level and goals. You can not only opt for SIPs (systematic investment plans) but also specific strategies like daily averaging for entry or exit, as an efficient route to investment. This averaging for a lower cost is what they claim cannot really be done through human intervention and requires a dedicated machine. Its ticket size ranges from about ₹20,000 and goes to as high as ₹40,00,000, making it one of the niche players in the field. The company is less than two years old and has nearly ₹50 crores of AUM (Assets Under Management).
Invezta
People are advised to invest in a mutual fund via a direct plan, in order to save on commission in the long term, and this is pretty much where somebody like Invezta comes into the picture. You pay a flat fee, give in your details, and then get fund recommendations based on your short and long-term goals. If the performance of the suggested fund in the previous period has been below the set benchmark, a proportionate free period is allotted to the user to compensate for the lower performance.
All these recommendations are automatic and the holding remains with your own stock broker and not with Invezta, so you can directly make any changes without having to deal with Invezta if the need arises. You can also change your existing plans to direct plans and invest via Invezta. “Our algorithms are being used by leading banks, wealth managers and other financial institutions which testifies to its robustness,” says the founder, Sharad Singh.
ArthaYantra
They provide an automated route that also has recommendations on real estate, life insurance or taking a loan, apart from mutual funds. This is one of the older names in the game, where users pay a flat annual fee and get recommendations based on algorithms — whether it’s for tax planning or goals-based investing. The company is DigiCert, SSL 256-bit encryption certified for better data protection and security. In fact, the company doesn’t do any offline work, and has every step of the process executed online. You have a choice of working with a person from their team, along with getting algo-based recommendations, but it isn’t necessarily going to make any difference in recommendation and monitoring of funds.
“The company goes by the concept of Arthashastra, where a financial pyramid is followed to reap optimum returns for the costumer. Our biggest USP is the robo-advisory platform in the true sense, and as many as 92 simulations are run for scientific portfolio construction and management. Behavioural finance is followed for profile building instead of traditional decade-old financial methods whenever a new customer signs up,” says CEO and founder Nitin Vyakaranam.
