#roboadvisoryplatforms

With robo-advisory platforms mushrooming over the internet, there’s no dearth of tech startups promising you sound advice on investments and on mutual funds in particular.

Many robo-advisory platforms may not even know how many mutual fund houses operate in India. Exaggerations aside, tech startups are toddlers in the arena of investing. They might not even have seen the sharp swings of the market ever.

But as they say, they are data-driven. They know as much about the history of markets as experienced investment gurus do, because they are take data-backed powered by technology. Tall claims!

If you think tech startups can give you sound financial advice just because they know technology better and can offer you conveniences, then you wouldn’t mind learning a dance form from a cricketer, isn’t it? Footwork is important in cricket, and a better dancer always has a pair of nimble feet.☺

And you should learn how to bat from an actor. Yeah, sometimes a batsman appears an innocent actor to deceive the umpire that he’s not out.  ☺

If this sounds bunkum, what makes it so logical to approach a tech startup for advice on mutual funds?

Many tech startups rely solely on third-party recommendations or only number-crunch to recommend mutual fund schemes to potential investors. But be careful: they could be rendering an illogical advice logically.

Imagine this…

A scheme was consistently generating the highest returns in the category, and ‘data filters’ set by the tech startups rushed to announce it as the best scheme for your portfolio.

This is a data-driven decision, with some number crunching on an excel sheet. Great!

But, what about volatility it exposed you to?

Oops!

That wasn’t a parameter.

No problem! A robo-advisory platform realised its mistake and incorporated a few more filters that shortlisted schemes with lower volatility and higher returns.

This was meant to work better, but contrary to the expectations, many of the recommended schemes were on the downside within a few quarters of recommending them, owing to change in their fundamental attributes.

You see, some robo-investing platforms might have a founder with a personal finance background. But the critical question is, can he/she make the entire setup, a technologically-enhanced investment platform meaningful for your long-term financial wellbeing?

What’s more interesting is to see how a robo-advisory platform earns money for itself.

If it makes tall claims and tries to promote Regular Plans offered by mutual funds, or charges you no money and promises to offer you everything for free, you are most likely to make a bad decision opting for it.

Let’s now try to understand the difference between a mutual fund Direct Plan and a Regular Plan...

Regular Plan — This is the conventional kind of plan, where you invest/transact through your mutual fund distributor/agent/relationship manager. The recommendations are usually guided by the mutual fund distributor/investment advisor/relationship manager, backed by indirect commissions earned from the mutual fund house while there is after-sales support and service.

In regular plans due to the distribution cost involved, you incur a higher expenses ratio.

Direct Plan — Opting for the Direct Plan eliminates the services of a mutual fund distributor/agent/relationship manager. You choose to invest directly with the fund house selecting Direct Plans. You do your own research or bank on mutual fund research reports to invest. The transactions can be performed online, using a robo-advisory platform or even physically by visiting the registrar’s or the asset management company’s office.

And since, transactions are routed directly; no commissions are paid by the fund house on the money you invest. Hence, the expense ratio for a Direct Plan is lower compared to Regular Plan.

How do you, as a investor, benefit from a Direct Plan?

One of the advantages of a Direct Plan is you circumvent the rampant mis-selling that goes on to earn commissions.

You will agree that today the scenario is at odds. It’s rare to find a ‘financial guardian’ whom you can trust for sound advice on investing and wealth creation. There are only a few who render  financial advice diligently and ethically.

Inflows under Direct Plans are witnessing a steady rise, only from cities such as Delhi, Mumbai, Chennai, Bangalore, Pune, and Chandigarh.

Over last few years, a majority of fund houses have managed to generate higher returns on assets of the same scheme coming through Direct Plans. This is because, besides the fact that market are in the uptrend, Direct Plans make a positive difference to your investments every year.

You earn approximately 0.5% - 1.0% additional returns every year by investing in Direct Plans, abetted by a lower expense ratio. This appears small to the eye at the outset; but over a span of a 15-20 year investment horizon, it reaps you a rich harvest.

Direct Plan: Reaping The Long-Term Benefits

(Source: PersonalFN Research)

As can be seen in the chart above, on Rs 10 lakh investment, a small difference in costs can result in savings anywhere between Rs 8 -17 lakh over 20 years. Yes, you can earn an additional amount of as much as Rs 17 lakh, if the difference in costs is as much as 1% point.

The final portfolio value varies with the magnitude of difference in expenses. Every 0.25% point difference in the expense ratio works out to an additional earning of Rs 4.50 lakh in 20 years’ time, if Rs 10 lakh is invested.

The additional returns earned by investing in Direct Plan of a mutual fund scheme can enable you to fulfil the envisioned financial goals such as buying a dream home, a car, children’s education, their marriage expenses, and your own retirement among others.

Hence, sow the seeds of these small savings to reap a sweet fruit powered by the benefit of compounding.

Does a Regular Plan and a Direct Plan of mutual fund schemes have different portfolios?

No, the portfolio is the same for a Direct Plan and for a Regular Plan of a mutual fund scheme.

The mutual fund scheme constructs its portfolio as per a detail invest mandate cited in its offer document. The fund manager and his research team are expected to follow the investment mandate to meet the set out investment objectives.

Is Direct Plan suitable for naïve investors?

Yes, ideally everyone should opt for a Direct Plan.

Usually, the time-consuming and tedious task of selecting the best mutual fund schemes deters many individuals to opt for Direct Plans.

But with PersonalFN’s research-backed recommendations based on comprehensive mutual fund research methodology, you do not need to worry on that front.

PersonalFN’s flagship mutual fund research service, ‘FundSelect’ is celebrating 15 years of wealth creation. ‘FundSelect’ is time tested mutual fund service that has helped beat the market by a whopping 80%

It will provide Buy, Hold and Sell recommendations… intended at solidifying your mutual fund portfolio and make it free from any bias.

If you subscribe now you can avail this premium mutual fund research service for just Rs 2,950 and get  1 year additional access (worth rs 5,000)... virtually free!

Click here to know more and subscribe to ‘FundSelect’ today!

Do robo-advisory platforms offer Direct Plans?

Yes, some of them do.

PersonalFN is soon launching an ultimate robo-advisory platform and will provide only Direct Plans. And the recommendations will be backed by on PersonalFN’s comprehensive mutual fund research methodology which accounts for host of quantitative and qualitative parameters.  

Here are four criteria that make a good robo-advisory platform:

Service

Unbiased and research-backed advice

Established and reputed company

Costs

Some robo-platforms may offer you only transactional services, while others may provide you with a host of offline and online personal finance offerings.

But in addition, a good robo-advisory platform should also have  advanced tracking and portfolio rebalancing services. Those that offer a mix of services should be worthy of your long-term financial commitment.

Also, the platform should be backed by a team of experienced customer service associates.

If you have any query related to the investments you make or if you are facing issues when transacting, it should be resolved quickly and professionally.

A robo-advisory platform backed by astute and comprehensive research processes will help you select the right mutual fund schemes. It plays a vital role; the fund’s performance should not be the only criteria.

A Robo-advisory platform that prudently selects best schemes for your portfolio backed by comprehensive research process and risk profiling is the right one for you.

As mentioned before, there is no dearth of robo-advisory platforms as the barrier to entry is low. While the competition is immense, you need to choose wisely and entrust your money to the best robo-advisor.

In this milieu, small robo-advisory firms may find business unviable, could shut shop, and leave you in the lurch. Therefore, opt for a robo-advisor platform backed by established companies in the financial services space, who have been unbiased in their approach and serving investors diligently for decades.

They should be fee-based to ensure that the commissions do not influence their advice. And sound and ethical research-backed investment recommendations are imperative.

Costs play a crucial role when you are planning your investments. Different robo-advisory platforms may charge you through one of the methods below:

An advisory or subscription fee (monthly, quarterly or yearly)

A transaction fee (each time you execute a transaction through them, they charge you a fee)

A percentage of the amount invested. (Popular in the US)

Commissions earned from fund houses of recommended funds

While the first three forms are upfront one-time costs, watch out for the last option, as the advice here may be biased. You can always decide whether the subscription fee or transaction fee is worth your money depending on the quality of advice and services offered.

Also, if you have a high quantum of assets, you can avoid investing with robo-advisors that charge you a percentage of your investment value as fees. The costs could end up higher than the one-time fees you would pay otherwise.

In addition consider this:

Do not be penny-wise and pound foolish while you invest your hard-earned money via a robo-advisory platform.

PersonalFN is soon launching an ultra-reliable robo-advisory fee-based platform offering only Direct Plans, and will be backed by honest & unbiased research that outperformed the BSE-200 index in last 15 years by over 80%!

Author: PersonalFN Content & Research Team

It’s happened all across the globe, not just in India… Financial planners charged hefty fees and delivered little results. Investment advisers gave biased advice eyeing the high commissions. … Investors with nominal capital face another difficulty. As you would know, only a handful of advisers and financial planners are keen to offer them services. Otherwise, acquiring “High-Net-worth Individual (HNI) clients” is the primary objective for advisers. Would you like to know what their rationale behind this is? “All clients irrespective whether they are HNIs or small investors, want top-quality services. As a result, servicing small investors becomes a loss-making proposition.” There might be some merit in this argument, but only to a certain extent. It’s often said that retail investors in India don’t want to pay for service. This is a partial truth. If somebody ever wondered why the average retail Indian investor has been depending on friends and relatives for investment advice, it’s because professional advisers avoided him/her. Does that mean low-net investors should be left out and HNIs are undeserving? Certainly not. Technological innovations are helping address issues that concern both kind of investors . Robo-advisory platforms are likely to change the dynamics of the financial services industry in future. Does this mean investors are to trust machines more than humans? Not quite. Let’s not forget, behind any technology, there’s always a human brain at work. As it is in the case with robo-advisory platforms. In simple words, robo-advisory is the investment advisory service managed by software-based platforms that use human-made algorithms. Undoubtedly, robo-investing is a significant development that’s likely to work positively for investors. Here’s how…

Robo-advisory platforms offer more options to investors as well as to advisers. If it was uneconomical to serve the retail investor with the human-advisory model, robo-advisory platforms offer an extremely economical alternative to retail investors. Although robo advisers provide you with “programmed” advice, it’s customised to an extent, based on the response of the investors to an online questionnaire that tries to assess investment objectives and the risk profile of the client. In other words, the quality of the output (advice/recommendations) depends on the quality of inputs (investors’ question/enquiries). Therefore, if you are going to use the robo-advisory platform, you need to be careful while filling up the input sheets. The approach you follow while filling up the feedback form at a restaurant isn’t the same as filling up this form—you simply can’t be casual. As far as the investment advisories are concerned, they use robo-advisory platforms as an additional tool that helps blend their offerings. They automate the simpler processes and retain the human-advisory model for more personalised and sophisticated advice. This helps them add more value to their services and may lead to greater client satisfaction.

Robo advisers offer consistent and instant advice . Human financial advisers are human first and investment advisers later. A variety of events and developments affect them. For example, if your advisor is generally averse to risk, he/she will always discourage you from taking the risk, even if your risk appetite is high and your financial circumstances allow you to take the risk. Conversely, if your investment advisor is aggressive, he/she may sometimes encourage risks, although your risk appetite is low. Similarly, his/her response to your queries may differ depending on market conditions, business targets they may be working towards and your rapport with him/her. Unlike this, robo advisers offer you consistent and instant advice. Sure, they are developed by humans, these aren’t altered frequently. Their response is purely based on the quality of question/query you feed in. Robo-advisers won’t look at the market indices and advise you on your investments. The inherent quality of robo-advisers is that these discourage the speculative approach to investing. Similarly, they won’t be driven by any sales targets, and so won’t alter their responses with some hidden motives. And these days, instant advice is becoming popular. Whatever be the approach of investors, smart investors understand the nuances of investing and they know that it’s better to be patient rather than take any decision in haste.

Better record keeping At present, not all human-advisers offer a digital record keeping option to their clients. As a result, many a time, they as well as their clients lose the sight soon after investments are made. Timely evaluation of the portfolio is necessary. Robo-advisers make a significant difference here. They not only help you retrieve even the minutest detail of your investments they offer you a safe alternative to transact.

Things to remember before you use the robo-advisory platforms...

They are built as a standard response tool to the standard personal finance needs. If your situation is unique, you may still need one-to-one advice.

The quality of a robo advisory platform entirely depends on the understanding of the person/company developing it. If the developer or its associates are well-versed with the personal finance domain, the platform would be more effective and vice-a-versa. Therefore, before, you get hooked onto a robo-advisory platform, you must check who’s developed it and who’s going to run it.

Don’t forget to know, how the robo-advisory platform will earn for itself. If it offers you everything for free and earns through commissions generated on your investments that would be just a digital variation of existing flesh-and-blood advisers who are driven by high commissions. On the contrary, if it encourages you to invest in direct plans offered by mutual funds, and charges you a small fee for its advice, that might work as a real fee-only trustworthy advisor. If you need handholding or high level of customisations while preparing your financial plan, don’t hesitate to seek services of a Certified Financial Guardian, who is mark of trust and respect.

Last but not the least, please ensure, the robo advisory platform has invested enough time and resources in securing your data and privacy to avoid being into unpleasant situations.

With robo-advisory platforms mushrooming over the internet, there’s no dearth of tech startups promising you sound advice on investments and on mutual funds in particular.

Many robo-advisory platforms may not even know how many mutual fund houses operate in India. Exaggerations aside, tech startups are toddlers in the arena of investing. They might not even have seen the sharp swings of the market ever.

But as they say, they are data-driven. They know as much about the history of markets as experienced investment gurus do, because they are take data-backed powered by technology. Tall claims!

If you think tech startups can give you sound financial advice just because they know technology better and can offer you conveniences, then you wouldn’t mind learning a dance form from a cricketer, isn’t it? Footwork is important in cricket, and a better dancer always has a pair of nimble feet.☺

And you should learn how to bat from an actor. Yeah, sometimes a batsman appears an innocent actor to deceive the umpire that he’s not out.  ☺

If this sounds bunkum, what makes it so logical to approach a tech startup for advice on mutual funds?

Many tech startups rely solely on third-party recommendations or only number-crunch to recommend mutual fund schemes to potential investors. But be careful: they could be rendering an illogical advice logically.

Imagine this…

A scheme was consistently generating the highest returns in the category, and ‘data filters’ set by the tech startups rushed to announce it as the best scheme for your portfolio.

This is a data-driven decision, with some number crunching on an excel sheet. Great!

But, what about volatility it exposed you to?

Oops!

That wasn’t a parameter.

No problem! A robo-advisory platform realised its mistake and incorporated a few more filters that shortlisted schemes with lower volatility and higher returns.

This was meant to work better, but contrary to the expectations, many of the recommended schemes were on the downside within a few quarters of recommending them, owing to change in their fundamental attributes.

You see, some robo-investing platforms might have a founder with a personal finance background. But the critical question is, can he/she make the entire setup, a technologically-enhanced investment platform meaningful for your long-term financial wellbeing?

What’s more interesting is to see how a robo-advisory platform earns money for itself.

If it makes tall claims and tries to promote Regular Plans offered by mutual funds, or charges you no money and promises to offer you everything for free, you are most likely to make a bad decision opting for it.

Let’s now try to understand the difference between a mutual fund Direct Plan and a Regular Plan...

Regular Plan — This is the conventional kind of plan, where you invest/transact through your mutual fund distributor/agent/relationship manager. The recommendations are usually guided by the mutual fund distributor/investment advisor/relationship manager, backed by indirect commissions earned from the mutual fund house while there is after-sales support and service.

In regular plans due to the distribution cost involved, you incur a higher expenses ratio.

Direct Plan — Opting for the Direct Plan eliminates the services of a mutual fund distributor/agent/relationship manager. You choose to invest directly with the fund house selecting Direct Plans. You do your own research or bank on mutual fund research reports to invest. The transactions can be performed online, using a robo-advisory platform or even physically by visiting the registrar’s or the asset management company’s office.

And since, transactions are routed directly; no commissions are paid by the fund house on the money you invest. Hence, the expense ratio for a Direct Plan is lower compared to Regular Plan.

How do you, as a investor, benefit from a Direct Plan?

One of the advantages of a Direct Plan is you circumvent the rampant mis-selling that goes on to earn commissions.

You will agree that today the scenario is at odds. It’s rare to find a ‘financial guardian’ whom you can trust for sound advice on investing and wealth creation. There are only a few who render  financial advice diligently and ethically.

Inflows under Direct Plans are witnessing a steady rise, only from cities such as Delhi, Mumbai, Chennai, Bangalore, Pune, and Chandigarh.

Over last few years, a majority of fund houses have managed to generate higher returns on assets of the same scheme coming through Direct Plans. This is because, besides the fact that market are in the uptrend, Direct Plans make a positive difference to your investments every year.

You earn approximately 0.5% - 1.0% additional returns every year by investing in Direct Plans, abetted by a lower expense ratio. This appears small to the eye at the outset; but over a span of a 15-20 year investment horizon, it reaps you a rich harvest.

As can be seen in the chart above, on Rs 10 lakh investment, a small difference in costs can result in savings anywhere between Rs 8 -17 lakh over 20 years. Yes, you can earn an additional amount of as much as Rs 17 lakh, if the difference in costs is as much as 1% point.

The final portfolio value varies with the magnitude of difference in expenses. Every 0.25% point difference in the expense ratio works out to an additional earning of Rs 4.50 lakh in 20 years’ time, if Rs 10 lakh is invested.

The additional returns earned by investing in Direct Plan of a mutual fund scheme can enable you to fulfil the envisioned financial goals such as buying a dream home, a car, children’s education, their marriage expenses, and your own retirement among others.

Hence, sow the seeds of these small savings to reap a sweet fruit powered by the benefit of compounding.

Does a Regular Plan and a Direct Plan of mutual fund schemes have different portfolios?

No, the portfolio is the same for a Direct Plan and for a Regular Plan of a mutual fund scheme.

The mutual fund scheme constructs its portfolio as per a detail invest mandate cited in its offer document. The fund manager and his research team are expected to follow the investment mandate to meet the set out investment objectives.

Is Direct Plan suitable for naïve investors?

Yes, ideally everyone should opt for a Direct Plan.

Usually, the time-consuming and tedious task of selecting the best mutual fund schemes deters many individuals to opt for Direct Plans.

But with PersonalFN’s research-backed recommendations based on comprehensive mutual fund research methodology, you do not need to worry on that front.

PersonalFN’s flagship mutual fund research service, ‘FundSelect’ is celebrating 15 years of wealth creation. ‘FundSelect’ is time tested mutual fund service that has helped beat the market by a whopping 80%

It will provide Buy, Hold and Sell recommendations… intended at solidifying your mutual fund portfolio and make it free from any bias.

If you subscribe now you can avail this premium mutual fund research service for just Rs 2,950 and get  1 year additional access (worth rs 5,000)... virtually free!

Click here to know more and subscribe to ‘FundSelect’ today!

Do robo-advisory platforms offer Direct Plans?

Yes, some of them do.

PersonalFN is soon launching an ultimate robo-advisory platform and will provide only Direct Plans. And the recommendations will be backed by on PersonalFN’s comprehensive mutual fund research methodology which accounts for host of quantitative and qualitative parameters.  

Here are four criteria that make a good robo-advisory platform:

Service

Unbiased and research-backed advice

Established and reputed company

Costs

Some robo-platforms may offer you only transactional services, while others may provide you with a host of offline and online personal finance offerings.

But in addition, a good robo-advisory platform should also have  advanced tracking and portfolio rebalancing services. Those that offer a mix of services should be worthy of your long-term financial commitment.

Also, the platform should be backed by a team of experienced customer service associates.

If you have any query related to the investments you make or if you are facing issues when transacting, it should be resolved quickly and professionally.

A robo-advisory platform backed by astute and comprehensive research processes will help you select the right mutual fund schemes. It plays a vital role; the fund’s performance should not be the only criteria.

A Robo-advisory platform that prudently selects best schemes for your portfolio backed by comprehensive research process and risk profiling is the right one for you.

As mentioned before, there is no dearth of robo-advisory platforms as the barrier to entry is low. While the competition is immense, you need to choose wisely and entrust your money to the best robo-advisor.

In this milieu, small robo-advisory firms may find business unviable, could shut shop, and leave you in the lurch. Therefore, opt for a robo-advisor platform backed by established companies in the financial services space, who have been unbiased in their approach and serving investors diligently for decades.

They should be fee-based to ensure that the commissions do not influence their advice. And sound and ethical research-backed investment recommendations are imperative.

Costs play a crucial role when you are planning your investments. Different robo-advisory platforms may charge you through one of the methods below:

An advisory or subscription fee (monthly, quarterly or yearly)

A transaction fee (each time you execute a transaction through them, they charge you a fee)

A percentage of the amount invested. (Popular in the US)

Commissions earned from fund houses of recommended funds

While the first three forms are upfront one-time costs, watch out for the last option, as the advice here may be biased. You can always decide whether the subscription fee or transaction fee is worth your money depending on the quality of advice and services offered.

Also, if you have a high quantum of assets, you can avoid investing with robo-advisors that charge you a percentage of your investment value as fees. The costs could end up higher than the one-time fees you would pay otherwise.

In addition consider this:

Do not be penny-wise and pound foolish while you invest your hard-earned money via a robo-advisory platform.

PersonalFN is soon launching an ultra-reliable robo-advisory fee-based platform offering only Direct Plans, and will be backed by honest & unbiased research that outperformed the BSE-200 index in last 15 years by over 80%!

Author: PersonalFN Content & Research Team