Need investment tip? go algo with robo-advisors

If you’re looking for advice online on where to invest, you’re bound to come across the financial world’s newest buzzword — robo-advisory.

Simply put, a robo-advisory is an automated financial planner, an algorithm that combines your savings capacity and investment goals to create possible investment options that you can choose from.

The most common advice will be a choice of mutual funds, split between equity and fixed income. It can also include suggestions on investing directly in stocks, fixed deposits, insurance, pension plans and gold.

Some advisory platforms let you execute these transactions — buy a mutual fund SIP, for instance — right there on the platform. Rahul Parikh, Head, MyUniverse (part of Aditya Birla Money), calls the model an “algo-driven customised investment advice given to clients based on their individual criteria”.

Parikh oversees ZipSip, the mutual fund investment platform launched in February by Aditya Birla Money, which runs on the robo-advisory model and which now, according to a CAMS report, ranks as the 12{+t}{+h} largest distributor of SIPs.

The cost factor The reason robo-advisories seem to be catching on is the cost factor — many online portals offer the advice and execution absolutely free.

But there’s also the paid model. Last week, ICICI Securities launched Track and Act on its brokerage website icicidirect.com. The wealth planning model starts off as a face-to-face interview and then moves on to the robo platform. The annual cost starts at ₹17,500 and progresses as a percentage of assets the advisory handles.

Online investment marketplace FundsIndia has had a robo-advisory for seven years, but Srikanth Meenakshi, Co-Founder and COO, says the concept has attracted attention only after big brands and brokerage houses started coming in.

Meenakshi says “robo-advisory was a concept developed in the US and since a lot of venture capital funds come from there, financial planning start-ups introduced the concept here.”

Also, the low-cost model of a robo-advisory makes it easier for, say, brokerages to convert existing brokerage clients into wealth management clients as well, besides earning income through distribution fees.

“The search is always on for the next big thing in asset management and for now, it is the robo-advisory,” says Meenakshi. “Right now, everybody in the space is going for the same small market of people looking for financial advice online. But our addressable market in the future is going to be every single Flipkart / Amazon shopper. Because if you are spending online, you can start saving online as well.”

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