In the last few years, the financial market has noticed a strong rise in the robo advisors in India. As a matter of fact, these Robo advisors have broken down the traditional barrier between financial services and the average investors.
For a very long time, an average investor cannot afford the advisory facilities of the high-fee Dalal street advisors. However, with the rise of robo advisors in India, these investors have a new alternative now.
In this post, we are going to discuss robo advisors in India. Here are the topics that we will cover today:
What are Robo advisors?
Benefits of Robo advisors
Shortcomings of robo advisors
Are all robo advisors in India same?
Who should use a robo advisor?
In short, it’s going to be a very interesting post. Let’s get started.
1. What are Robo advisors?
In simple words, Robo advisors are online platforms that provide automated financial planning services based on the designed algorithms with minimum human interference. This is a method to automate asset allocation (and investments) of customers using computer algorithms.
Robo advisors are easy for goal setting and allocation for those who have no idea of where to begin.
Basically, robo advisors collect important pieces of information from clients like their financial situations, goals, preferences etc through a survey. And they use this data to offer financial advice or to automatically invest clients assets. (Please note that here the financial experts of the firm regularly monitor the market activity and underlying investment to keep the algorithm efficient.)
Robo advisors differ from the traditional financial advisors and do it yourself investors on various factors like cost, flexibility, time & research etc. Here is a simple comparison between traditional advisors, do it yourself investors and robo advisors.Traditional AdvisorsDo it yourself InvestorsRobo AdvisorsCostHighLowMediumFeasibilityMediumHighLowMinimum InvestmentHighLowLowTime & ResearchLowHighLow
From the above table, you can notice that the robo advisors can be a good alternative to the traditional advisors.
2. Benefits of using robo advisor.
The biggest benefit of robo advisors is that they deliver services directly to the customers.
Compared to the traditional advisors, robo advisors offer a low-cost alternative because these digital platforms similar services with a fraction of cost charged earlier by eliminating the human labor. Moreover, robo advisors are easily available and can provide a 24×7 support.
In terms of initial investment, you need a very little capital to get started with robo advisors in India. Same is not true in case of traditional advisors. For an average investor, the fees of the traditional advisors can cost a lot. They can easily charge as much as 20-30k for providing the advisory services of a year. Nevertheless, if you are investing a small amount (say less than one lakh), then even if you make a good return of 15% on your investments, still this profit will be gone in the annual advisory fee only.
That’s why most of the clients of the traditional investors are the people who are investing lakhs of rupees. In general, the top human advisors won’t take clients with less than Rs 10-15 lakhs of annual investments.
3. Shortcomings of Robo Advisors:
The robo advisors in India are still in the evolutionary phase. And that’s why they still have a few shortcomings.
For example- Robo advisors lack emotions and empathy. As investments are also a subdomain of behavioral finance, there are still some doubts about the viability of Robo advisors.
Further, although they are good for beginners, still robo advisors are not effective for the advanced advisory services like complicated tax planning, real estate investment planning, multiple stage retirement planning etc.
And finally, Robo advisors are not trained/equipped to deal with an unexpected crisis or extraordinary situations like the economic crisis of 2008. Whether they can perform better or worse than the traditional advisors in such situations- is still not tested.
4. Are all Robo Advisors in India Same?
Now that you have learned about the basic meaning of the robo advisors, the next big question might be that- Are all these robo advisors the same.
The answer is ‘No’. All robo advisors are not the same in India. They have different algorithms and moreover, they differ in important factors like minimum investment, annual fees, asset allocation, account type, support, automation, tax planning etc.
If you are planning to use robo advisory, it’s important that you check these criteria and find out the best one that suits you.
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5. Who should use a Robo Advisor in India?
The simple answer is that anyone can use Robo advisors in India.
However, the complicated question is whether they should or not? For the people who are investing lakhs of rupees, should they go with revolutionary robo advisors or choose the time-tested traditional advisors?
Although it might take years to find the right answer to the above question. However, there is no denying the fact that robo advisors in India are a good fit for people who are young, lacks investment experience and have a simple portfolio.
That’s all for this post. I hope it was helpful. Happy Investing.