The investment scenario in the country has been seeing rapid changes in terms of the volume being traded, the increased retail participation, and the increased use of fintech services in every aspect of financial markets. Robo Advisory firms are the latest form of an addition to this changing investment scenario in the country with the ability to create suitable portfolios with minimal human intervention. Given here is the meaning of this term and related details of the same.
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What is Robo Advisory?
The term robo advisory refers to a digital platform that provides automated, algorithm-driven investment and financial planning services. There is little to no human intervention in the decision-making process. Robo advisory combines advanced software algorithms with machine learning and artificial intelligence in order to provide critical investment advice and portfolio management services. Robo advisory firms use the key data points and algorithms that analyse various aspects like investors’ risk profiles, financial goals, etc.
The robo-advisory firms offer a range of products for investment like stocks, mutual funds, bonds, and exchange-traded funds (ETFs). Investors can use robo-advisory firms to undertake all the essential tasks like investing funds, monitoring investment portfolios, etc. These firms have the benefit of lower costs as there is no human intervention as well as provide a user-friendly platform for traders and investors, especially beginners.
Robo Advisory in India
There has been a huge surge in the popularity of robo-advisory firms in India over recent years. Against the backdrop of increased investor awareness and interest of investors in share markets, many companies have launched robo-advisory firms in India. These firms offer many types of investment services and personalised investment advice.
The focal points of robo-advisory firms are the elimination of human bias as well as access to real-time data for portfolio revision and making short-term or long-term gains.
What is the need for Robo Advisory?
Robo-advisory is growing at a fast pace in India. The need or the importance of robo-advisory forms in India are given below.
Limited financial literacy
Although there has been a huge increase in the investor base in the country, financial literacy is still quite limited in India. Many people even today lack the required knowledge about personal finance and investment management. Robo-advisory platforms can provide optimum financial advice and investment management services. This helps in bridging the gap in financial knowledge and awareness across the country.
Increased digital penetration
The Digital India vision of the government has seen many achievements and one of the crucial ones among these is a significant increase in digital penetration in recent years. More people are accessing financial services through user-friendly digital platforms. Robo-advisory platforms are well-suited to cater to this growing demand for digital financial services.
Personalisation
Robo-advisory platforms use algorithms and data analytics to provide personalized investment advice. Such advice is based on the investment goals that are specific o every individual, their risk tolerance, and investment horizon. This helps in curating a personalized or tailored investment portfolio and meeting their financial goals in an efficient manner.
Increasing investor base
The investor base in India is constantly increasing on account of digital expansion and increased awareness on part of retail investors. However, despite this growing investor base, traditional financial advisory services are still expensive and are often beyond the reach of average investors. Robo-advisory platforms provide an affordable and accessible alternative for investors and cater to their individual needs.
Cost-effective investment management
Robo-advisory platforms do not have the additional cost of professionals catering to the investment needs of investors like traditional investment management firms. This helps in providing cost-effective investment management services, making it a cost-effective option for investors. This benefit is crucial in further increasing the investor base, especially in a country like India, where the majority of the population is price-sensitive.
What are the benefits and limitations of Robo Advisory?
The concept of robo-advisory firms in India still has a long way to go and there are multiple benefits and limitations of robo-advisory firms in India. The details of the same are mentioned hereunder.
Pros
Some of the key benefits of robo-advisory in India include,
- Cost-effective
- Personalisation in the investment portfolio
- Easy accessibility and user-friendly portal that can be accessed 24/7 from anywhere.
- Transparency in managing investment opportunities and the portfolio as well as related details like fees, analysing the overall performance of the portfolio, etc.
Cons
Some of the key limitations of robo-advisory firms in India include,
- Lack of human touch which is the crucial benefit of the traditional investment model
- Presence of technical glitches
- Limited flexibility as against traditional investment model
- Limited investment options
- Data privacy issues due to cyber-attacks and data breaches
Conclusion
Robo-advisory is the new age form of investing that essentially removes the human element and provides investment decisions free from any bias. Investors can get crucial investment decisions using real-time data at a minimal cost. Therefore, robo-advisory firms are the future of investments in the country but they may never replace the traditional investment model completely.
FAQs
There are generally three types of robo-advisory firms in India namely the standalone robo-advisory firms that focus only on providing such services in the country, hybrid robo-advisory firms where the companies combine automated investment advice with human advice, and finally the traditional financial firms with robo-advisory services where already existing and established companies offer robo advisory services.
According to a few experts, robo-advisory firms are expected to grow at a CAGR of approximately 43% between 2021 and 2025.
Some of the top robo-advisory firms in India are Fisdom, Angel Broking ARQ, 5Paisa Auto Investor, Scripbox, Sharekhan NEO, and ET Money.
Few securities that are available for investment through robo advisory firms are stocks, bonds, mutual funds, ETFs (exchange-traded funds), index funds, real estate, or other alternative or direct investment products.
