Everything is online. Shirts, shoes, fruits and even mutual funds!
Websites that sell shirts, shoes and fruits are referred to as e-commerce websites.
Websites that sell mutual funds online are (wrongly!) referred to as robo-advisors.
However, it would be unfair to refer every online mutual fund seller (or SIP facilitator) as a robo-advisor.
Robo-advisor is not a simple replacement of human financial advisors. A robo-advisor’s duties go way beyond those of a human advisor.
Let’s list down the features of the ideal robo-advisory in India –
- Should offer custom solutions
- Should use technology to design and execute custom solutions
- Should be able to actively manage your portfolio
- Should use human effort and judgement wherever technology falls short
Let’s have a look at these features one by one…
A robo-advisor should offer custom solutions
We are pretty sure that irrespective of your age, you have been advised to invest in mutual funds via SIP.
That is what has been happening for far too long. Every mutual fund investor has been advised to invest in SIP by every mutual fund advisor in India – may the advisor by human or robo!
There is no customization based on an individual’s characteristics (age, risk appetite) or his specific requirement (financial goals, investment horizon)
For example – Let’s consider a 65-year old retiree.
Does SIP make sense to him as an investor? He is probably looking for a monthly income solution. The monthly income solution should not only take care of his present expenses but also keep him ahead of inflation. Yet he would be asked to invest in mutual funds via SIP.
At Finpeg, not only do we have wealth solution for a 30-year old, but also have a monthly income plan in place for his 60-year old parents.
30-year old? Check out Finpeg Alpha SIP
60-year old? Check out Finpeg Monthly Income Plan
A robo-advisor must use technology
The infrastructure for SIP has been in place for 20 years!
An SIP-platform that comes up today is trying to sell a 20-year technology!
It might come with a few bells and whistles, but nothing substantially extra.
How do you choose between two so-called robo advisors then?
You are more likely to fall prey to an advertising gimmick than anything else.
For example – Some websites claim they have a great track record of spotting an index-beating mutual fund early on in its lifetime! And they will provide you with a list of 5-10 such undiscovered funds for a one-time fee every year so that you can set up SIP. This is not robo-advisory!
At Finpeg, we extensively make use of artificial intelligence to design mutual fund investment solutions.
Not only do we leverage technology to design mutual fund investment algorithms but also execute them.
Finpeg’s proprietary asset allocation rules take in to account millions of data points. Moreover, these rules update themselves to adjust to new incoming data every day!
This application of technology to mutual fund investments in India is unprecedented.
A robo-advisor should actively manage your portfolio
An SIP is a mechanism of picking up a sum of cash from your bank account and dumping it in to equity mutual funds at regular intervals. It is simply handing over mundane work to an unintelligent system.
There is a complete absence of active management!
An example of active management would be a system working toward maintaining a debt to equity ratio.
You can instruct a system to maintain a 60:40 debt to equity ratio. Additionally, whenever either allocation changes by 5 points, the system smartly reverts to 60:40 allocation. This is active management!
Finpeg’s asset allocation rules are geared towards maximizing returns and minimizing risk. We take in to account primarily the present market conditions to decide a debt to equity ratio of your portfolio.
Invest more in equity mutual funds when the market is down and move to debt mutual funds when the market is at high valuation.
In short, our investing philosophy is switching gears instead of moving in auto-pilot.
A robo-advisor should use human intervention where technology falls short
Isn’t it contradictory how knowing your weaknesses is a sign of strength?
A robo-advisory should understand that technology might not be able to take care of everything. And when that happens, it’s wise to deploy human effort and judgement.
A robo or an automated system is great to design an investment strategy and even execute it. But you need human mind to understand a person’s requirement.
You need a human mind to make tweaks in the system in place. Only a human mind can realize that there exists a difference between two short-term goals like daughter’s marriage and buying a car.
How many investment portals where you registered ever cared to call you back? The ones that did only did so to try to fit SIP into your financial goals – even if it didn’t.
Even today’s smartest robo falls short of understanding a person. And to plan one’s investment, you need to understand one’s mindset along with one’s finances.
At Finpeg, we believe that robo advisory is incomplete without a human touch. This is the reason why we have investment experts with backgrounds in finance, economics and actuarial sciences to help you out.
The investment experts take care of –
- Helping you understand our mutual fund offerings
- Helping you get started with your investments with us
- Understanding your risk appetite
- Helping you understand the risks involved and how we mitigate it
- Chalking out a financial plan according to your financial goal(s)
We believe only a real person can do justice when it comes to the things mentioned above.
The set of investment solutions offered is just an extension of the robo advisor. This is why every investment solution must have the following features –
- A good mutual fund selection algorithm
- A sound investment philosophy with a good historical track record
- A logic-based rebalancing strategy
- Can be executed without human intervention/with minimal human intervention
Finpeg’s offerings are built around these features. This makes them some of the best mutual fund offerings in the country.