Why Robo-advisors Are The Future of Investing in Mutual Funds
A new technology called augmented reality (AR) changes the way in which we experience life. Once a futuristic concept, this technology enhances the real world with digital information and media. Essentially, computer-generated data will enrich what we see, hear, and feel.
It won’t be long before this technology dominates the financial services space. Financial transactions via smartphones and other mobile devices are on the rise and augmented reality can dramatically personalise and enhance your experience.
AR is already moving from gaming apps to mobile banking apps. Belatrix, a US-based software consultancy, implemented an augmented reality map to help users easily locate nearby ATMs, simply by using the camera on their phone. The app combines a live view of a street with location-based services. The nearest ATM is indicated onscreen, based on the direction the phone is pointed at.
While financial services firms are exploring the scope of AR, the technology world has already moved on to environments that offer Mixed Reality (MR) and Extended Reality (XR). Very soon, such applications will influence the way you save, invest, and plan your finances.
The trend is slowly catching on across the mutual fund industry too.
Robo-advisory Platforms-The future of mutual fund investing
PersonalFN has always been of the view that you should never make ad-hoc investments in mutual funds. Many invest in mutual funds influenced by the market noise. They invest when the market has run up and sell when the market is on its way down. This method of investing can destroy your wealth. Therefore, it is pertinent to set SMART financial goals and to invest systematically towards them.
Yet, it’s not as easy as it sounds. Doing all this yourself can be a strenuous task. This is why you need to leverage your personal finance with technology. In an earlier article (read here), we highlighted that we have web-platforms powered by computer algorithms (also known as robo-advisors) that offer financial and investment advice on submitting your personal finance details. All you need to do is create an account, submit your info, and voila! — your financial plan is generated in minutes.
Robo-advisory platforms enable you to save and invest in mutual funds in an automated manner. What’s more, there is no need to visit a branch or send across physical documents to enact transactions. Everything can be done online through the internet.
If you are still investing in mutual funds in an ad-hoc manner, leaving behind a paper trail is untrendy. Now-a-days, it is the generation of planned and paperless transactions.
Here’s 5 important reasons why you should invest in mutual funds through a robo-advisor-
- Convenient and time-saving
Robo-advisors offer a user-friendly interface and a world of convenience. There is no need to set up an appointment with a financial planner each time you need to review your goals. You can manage your mutual fund investments from the comfort of your home or even on the go through a mobile application. Everything from KYC (Know Your Customer) to redemption of mutual fund units is possible online. In addition, you can regularly monitor the performance of your investments and check whether you are on track to achieve your financial goals.
- Benefit from the right asset allocation
As we mentioned earlier, many invest in mutual funds in an impulsive manner. Investments are made without proper planning or even a long-term view. This results in the investments to be either underexposed or at times even overexposed to risky assets such as equity mutual funds. Therefore, it is pertinent for you to invest as per your risk profile and investment horizon. A good and intelligent robo-advisor will help you achieve this for the various goals that you set.
3. Grow your wealth with the right products
Mutual funds schemes are offered in many different styles and options. You need to choose the right product to meet your investment goal. A robo-advisor that is backed by strong research processes will help you select the right funds. Such platforms will narrow down the funds keeping both quantitative and qualitative factors in mind. Therefore, weightage will not only be given to performance and risk, but the fund management quality as well.
4. Devoid of behavioural biases
A robo-advisor will set a plan to achieve your goal and will keep it on track irrespective of the market movement. Therefore, if you had to set out to invest on your own, you may often end up altering the plan based on the whims and fancies of the market. Very often, you may have contemplated whether to invest now or whether to redeem your mutual fund units. If you go ahead with such decisions, without keeping the long-term view in mind, it can ruin your financial plan. And we are dead serious!
A few years back, Fidelity released a study discussing a performance breakdown for their accounts. The clients that did the best — were the ones who were dead. The second best performing set of clients forgot they had Fidelity accounts. Clearly, if you maintain a long-term focus, you will most likely achieve your financial goals. A robo-advisor will ensure you do this.
5. Save immensely on costs
Many ignore costs. However, if you compound the benefit of lower costs over the long-term of 10–20 years, it will easily work out to lakhs of rupees. Thanks to technology, robo-advisers are able to lower their costs, hence, they are relatively cheaper than traditional financial planners. An ethical robo-advisor will keep costs low and charge you a flat fee and not a percentage of your investment. They will even offer you direct plans that will help you save humungous on costs.
There is no dearth of robo-advisory platforms as the barrier to entry is low. While the competition is immense, you need to choose wisely, so as not to entrust your money in the wrong hands. Some platforms may entice you with gifts, lucky draws, attractive discounts or extended subscription plans.
Don’t fall for these marketing gimmicks!
You need to opt for robo-advisors who are genuinely concerned about your long-term financial well-being. You should be careful of not investing your hard-earned money through fly-by-night operators. With the immense competition, smaller robo-advisory firms may find business unviable and could shut shop.
Opt for robo-advisors backed by established companies in the financial services space. Sound and ethical research processes fully support their investment recommendations. They should be fee-based to ensure that the commissions they earn do not influence their advice.
A robo-advisor can offer you a world of convenience thanks to the advancement in technology. Opt for a specialised robo-advisory service that will ensure your financial well-being through mutual funds — one that proves to be worth more than the costs. If you have not yet zeroed in on a suitable robo-advisor, we suggest you wait, because the best robo-advisor that encompasses all that we have stated above may be just around the corner.