AI can invest for you
in the financial year 2021, over 14 million new demat accounts were opened in India. this is nearly a threefold jump from the 4.9 million in FY20.
a low-interest rate regime has moved the focus of every Indian away from fixed deposits to better avenues of returns. this can be witnessed in the growth of direct investments in mutual funds and other riskier asset classes, like direct equity investing.
for decades, wealth management for an average Indian meant putting money in gold, real estate and fixed deposits. professional wealth management services were accessible only to the crème de la crème and, even then, the process was cumbersome and expensive.
with the ease of access to the internet and the rise of fintech, even DIY investors can now find professional wealth advice on their smartphones.
hence, it’s no surprise that robo investing is on the rise in India.
Robo investing is an investment strategy which relies on algorithms for capital allocation instead of wisdom of individuals. such robo advisory platforms follow rule based investing with the help of machine learning to create a custom portfolio for their users after assessing their financial situation and risk tolerance.
Robo advisors reduce the need for middle-men by automating most of the processes, thus resulting in ease of access, low management fee and low minimum investment amounts.
the idea took off in the US around the dotcom boom of the 2000s and has now grown into a huge industry. alone in the US, the asset under management (AUM) is projected to be nearly $999 billion by the end of 2021.
in India, this space is still in its infancy.
the AUM in this segment is projected to reach $13 billion in 2021 and is expected to grow at an annual rate of 42.56% to reach $54 billion by 2025.
Robo advisory is a novel idea but is in its nascent stages in India. until the passive products markets mature, robo advisors will have to rely on active funds and manage the risks that come with them.