With chatbots that can write and create like humans, Artificial Intelligence is the talk of the town, but can machines tell us how to invest our money?
The Promise of Robo-Advisors 🔬
With backers like Warren Buffet, many investors believe that passive investing is the easiest way to invest. Yet, even passive investing can be time-consuming due to the wide variety of assets, fund houses, and investment approaches available.
Here come the Robo-Advisors to help. These snazzy investment tools take your risk tolerance, return target, and other factors into account and construct a customised portfolio from a wide range of current exchange-traded funds and mutual funds.
In a nutshell, they are online software that advises and facilitates direct investment in a customised portfolio of assets. They may also offer a variety of additional benefits like tax-saving, dividend reinvestment and portfolio rebalancing.
The Indian Robo-Advisory Scene 🏌️♂️
Style: Indian Robo-Advisors usually have a selected list of asset classes like Gold, Debt, Equity and International Assets of which they prepare a basket with proportions depending on the risk profile and goals of the individual.
For example, ETMoney Genius uses Equity Valuations, Interest Rates, Price Trends, and Inflation to give you a dynamic allocation every month.
Fees: They charge a flat advisory fee on a monthly basis like Rs. 250 a month. Your mutual fund investments are likely to be regular plans (similar to distributors), which means you'll pay a little more which is given as a commission.
Automation: Unlike completely autonomous solutions like Betterment in the United States, Indian platforms rely on investors to initiate transactions due to regulatory restrictions.
Is it a feasible investment option? 🗿
Despite the hullabaloo, a few structural challenges make them a less appealing option in India:
Outperformance is possible: Passive investing, which is the primary benefit of using a Robo-Advisor, has yet to gain widespread popularity in India. This is partly because the Indian market still has opportunities for investors to generate higher returns through active management (wink wink)
Limited Diversity: In the US, there are many more ETFs and mutual funds to choose from, which makes it easier to spread risk and maximize returns. In India, the options are more limited, making achieving the same level of diversification harder.
Slow Adoption: There may be a general reluctance among Indian investors to embrace Robo-Advisors. This could be because most new investments in India happen through push selling from institutions like mutual funds (with their long, sped-up disclaimers) or bank managers who don’t leave you once you enter the branch. High-tech Robo Advisors lack the simplicity to attract new investors.
Final Thoughts 💭
Although a robot that manages all of your investments sounds pretty cool (unless it is Skynet), that is not totally feasible currently. Despite technological capabilities, the structural challenges in India, make it difficult for a Robo-Advisor to give you the best returns.
Individual investors must tailor their investment decisions to their financial objectives, risk tolerance, and a myriad of other factors. This complexity cannot be handled by robots at present, but it might get there eventually.
We are excited about the future, but until then, maybe stick to good-old Rupeeting for your investing goals!