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Chirag Nanda

Chirag Nanda is a Senior Manager, Trading & Risk Management working out of Sapient Gurgaon office. He has 13 years of IT consulting and delivery experience, working for leading Investment Banks, Energy Utility companies & Hedge Funds. He is currently playing the role of Delivery Lead for a strategic Asset Management client for Sapient Global Markets. He has previously played roles like Commodities QA Practice Lead, Sr Specialist QA and Program Manager. He has also worked as a Senior Business Analyst across Front, Middle and Back offices.

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Robo-Advisors Becoming Mainstay In Fintech And Personal Investing

Recently, robo-advisor solutions have received significant funding from venture capital funds around the world. The total capital raised for this nascent industry crossed a quarter of a trillion dollars.

Photo Credit : angelbroking.com/,

What will be your first thought if your portfolio manager or investment advisor insists too much on a particular scrip? Either the scrip is a great prospect or may be, the manager has some vested interest.

Is there a way an investor be sure about the ‘personal-bias’ of a fund manager and yet get in-depth, analysis driven, personalized investment advisory? Yes. The answer is a robo-advisor, which can mine and analyze far more data and information that a team of humans can ever think of, and deliver unbiased insights.

Recently, robo-advisor solutions have received significant funding from venture capital funds around the world. Robo-advisor platforms like Wealthfront, Betterment, FutureAdvisor, Personal Capital and Learnvest have got a lot of traction over the last few years, as the total capital raised for this nascent industry crossed a quarter of a trillion dollars.

Here are 5 reasons why robo-advisors should become a default choice for those seeking financial advice and analysis.

1. Portfolio rebalancing

Robo-advisors track the client profile and map in against market dynamics on real time basis. Therefore, any significant change in either of the two triggers portfolio rebalancing, without much human intervention.

For example, let’s assume that a client’s ideal portfolio has 25 percent investment in pharma, 25 percent in midcaps, 20 percent in technology, and the remaining 30 percent in international stocks. If the pharma sector outperforms the rest of the market, the portfolio would become ‘overweight’ on pharma due to the price increase.

The algorithm would automatically sell off some pharma stocks and buy into other sectors to rebalance the portfolio to the original allocations.

2. Super low fees and ticket size

Management fees charged by financial advisors reduces the net return on portfolio. The usual 1-2 percent annual fees can make a huge difference over a long period of time. Robo-advisors charge only a fraction of this costs, ranging from 0.14 percent to 0.50 percent.

The startup, Wealthfront fro example, requires zero initial investment as long as you fund your account with at least 100 dollars a month.

3. Smart algorithms

The core strength of any robo-advisor is a sophisticated algorithms that creates an investment portfolio with the greatest return for the smallest risk. They use cutting edge investment portfolio research to drive their products. The smarter the algorithm, the better returns an investor and fund manager can expect.

4. User experience

User experience was never as important for banking, financial services and insurance (BFSI) industry as it is now. Therefore, most robo-advisor platforms come with good looking websites, intuitive mobile apps, ultra-fast servers, and top of the line features like e-mail and SMS notification systems etc. All this translates to a great online experience for the end-user. For Gen Y and Z that have been raised on the internet, this is certainly a native way to invest.

5. Tax-efficient investing

Taxes can have a major impact on investments. The robo-advisor algorithms are designed in such a way that it optimize capital gains taxes. For example, it often invests through index based exchange traded funds (ETF). ETFs are based on the underlying index, so trading takes place only when the index changes. Therefore, it leads to very low amount of capital gains.

Some mutual funds and brokerage houses here have already started using algorithmic solutions to manage the investor portfolio. We can expect the trend to accelerate in 2017 and thereafter.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house



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