The Robo Investment Advice
Indian Economy & Market|February 2018

Most of them are copycats of the US models.

When FundsIndia.com announced operations in Robo advisory space people laughed at them. The firm had received huge funding from the Foundation Capital and others. But within a very short span of time there are around 40 companies in India who are offering this service. Being an internet based service; it is catching the eyes of a lot of young people. The objective is to reach out to the young and first-time investors. From registration to execution, little human intervention is needed.

The Robo advisors provide online advice for investments to their clients based upon automated proprietary algorithms where an investor has to register and provide the answers to the questions which decide their risk profile. Robo-financial advisors have strong algorithms at the backend where they create a desired portfolio based on certain parameters like risk profile, performance consistency vis-à-vis benchmark, investible surplus etc.

Based on all this, algorithms generate a Robo investment advice incorporating asset allocation and mostly offer a portfolio made up of debt and equity mutual funds. The securities as advised can be the direct equities or the passive investment tools like index funds, exchange traded funds (ETFs), or mutual funds. All the interactions are digital and around financial goals such as tax planning, saving, regular investment and retirement. Some Robo-advisors primarily offer only mutual funds in terms of transparency, returns and accessibility; these are found to be most appropriate to address goal-based asset allocation needs for retail investors. Some offer insurance and deposits also.

Broadly, the Robo-advisory platform can be categorized into four—automated investments, direct plans, goal-based advisory and full service advisory. In auto-pilot mode, investors select among the offered packages as per their need, and the time they think they will stay invested. The goal-based advisory is structured on asset allocation, which means the fund selection is a result of the information you provide. Some firms operate on a distribution model, as similar to traditional advisors. They advise on funds and assets to invest in and the transaction is completed through the platform, all for free. The platforms, in return, earn a commission from the mutual fund corporation house. Some operate on an advisory model and charge an advisory fee.

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