The Mutual Fund Show: What To Keep In Mind While Investing Online
Investing in mutual funds is now just a few clicks away, but it comes with great responsibility.
Investing in mutual funds is just a few clicks away.
Websites of asset management companies help you buy online, though only their own schemes. Others including Clearfunds, Zerodha and Mobikwik provide the website option to chose from multiple fund houses. And wallets such as Paytm and PhonePe let you invest from your mobile phone. WhatsApp is the latest to join that list.
Some of the online investment platforms also offer robo-advisory services—algorithms help investors choose schemes with minimal help from humans.
“Robo-advisory is being used by several online mutual fund investing platforms,” said Suresh Sadagopan, founder of Ladder 7 Financial Advisors, in BloombergQuint’s weekly series The Mutual Fund Show. It’s at a preliminary stage as of now but will evolve with time and become reasonably good, he said.
But this ease of online investing has shifted the onus completely from financial advisors to investors.
“With great power comes great responsibility,” Lalit Keshre, co-founder and chief executive officer at Groww, an online portal and app, said referring to the comic superhero Spiderman’s motto. “With direct investing through mobile apps/payment wallets, a lot of power is shifted to the investor.”
Investors need to be well educated and aware of when, how much and where to invest, Lalit said. “The stakes become even higher if the amount is a big one.”
Sadagopan advised reading up about the options and setting investing goals before taking the plunge online. Lalit suggests learning while investing. “Start with a small amount, say Rs 500 a month,” he said. “Once you have skin in the game, you will automatically try to learn about investing in mutual funds.”
The two explained the pros and cons of some of the options, and the dos and dont’s when investing online.
Watch the full show here to know more about online platforms available for quick direct mutual fund investing:
Here are the edited excerpts from the interview:
You (Suresh Sadgopan) are one of those advisors who are slightly different in what you advice people. You make sure that people go direct so that the net-asset value returns are much higher. Can you explain the evolution of this process? Because two to three years ago you would have a handful of options available, and now along with mutual fund websites themselves, there are a bunch of other options like Groww.
Suresh Sadgopan: I think I will go one step behind. Once upon a time, the availability of information was a problem. It got sorted over a period of time when internet and information started becoming a common place. So, information was available, but the transaction was still in the paper-and-pen mode and a lot of forms were to be handled. Digital solved the problem of paper and pen.
With the digital revolution, availability of information in real time. Platforms like Groww or Paytmcan help people put in money and withdraw money and set up a systematic investment plan at any point of time.
Now what has changed for people like us who are advisors. Today, the problem for most of the people is to find out that where they should invest that money. That is still the problem which needs to be sorted, and which has been taken care of by advisors. For a lot of people who do not have credible advisors backing them, some of these platforms are also giving some level of advice based on the information that they collect. Whether the advice is suitable for them or not is still something they need to figure out themselves. We typically call it robot advisory. Some of them are typical transaction platforms and some have advisory capabilities, typically referred as robot advisors. That advisory capability is also evolving and scaling up today. Over a period of time, the basic level of advice that normally a person wants will be available to them.
As far as we are concerned, we are okay, if the client takes the advice and transact on any of those platforms. We give a list of those platforms, and whichever platforms investors are comfortable with they can transact on those.
What has been your experience when it comes to client acquisition and client retention? How have you evolved in over the last 12-18 months? What are the services that you have to add in order to keep clients?
Lalit Keshre: Suresh had perfectly articulated what are the gaps in the system, which is primarily on the information and the execution side. Different players are filling that gap in a different way. I think everybody is moving towards the one goal—to democratise financial services in India. As you know penetration of investing is very low, and good folks like Suresh are doing it in one way by advising customers.
Apart from having the common execution as other platforms, Groww is distributing the right information. The investors need to have the right information about where they are investing and also get educated about the various aspects of investing and that is the approach which we are taking. Our primary user acquisition and retention happens because Groww provides the right guidance to investors. We are not like robot advisors. We believe that if we provide right information to the customers, they can make their decisions. Then there are advisors who can help them, if they need more guidance.
Client retention happens because when you have a direct platform, your interests lie with your customer. So, all the things we do are for investors. That is how users stay with us and acquisition and client retention becomes easy for us.
How would Groww differentiate itself from others?
Keshre: The execution is simplest on Groww. One can open an account and start investing very fast. We are playing a bigger role in user awareness about mutual funds. It’s not just a pure execution platform. When a user starts investing by Groww, they also start engaging on mutual funds, different types of asset classes in mutual funds and how much one should invest. There are hundreds of questions that users have in their minds before they start investing. Groww makes it possible for them to answer questions. That’s the biggest difference with everyone else.
Have you been caught by surprise the way online investing has evolved?
Sadgopan: This is an evolution of digital itself. Initially, we had platforms which were enabling transactions. These are all platforms and they own a bank, or they don’t have back-end as a bank. They enable the transaction through one of the banks and banking accounts that they have. They connect to the banking account. Mobikwik, which is a wallet, can have money at the back-end. In that situation, it is even easier for them to enable it. I see this as a gradual evolution which is happening in the digital space by enabling investments of people in a smooth manner and ensure that more people get into the investment habit.
You can do a plethora of things with the money that you have in that place. Lot of millennials are comfortable using Paytm or Mobikwik. Some of these apps can link-up to some of these wallets. But if you are already a wallet, it becomes much easier.
For people who are not using advisors and are directly going to a platform—what the first-time users or even experienced people do is they sort funds by five-star category and go out and invest in it—is it a habit that is difficult to let go off?
Sadgopan: As far as direct funds are concerned versus regular funds, there are articles which say that in a direct plan you save a lot of money. While on the face of it, it is true that you save. If you do not have someone to give advice, then you will try to do everything on your own. May be for the 1 percent of investing population, it will still work because that 1 percent will be a savvy set and are wiling to do their homework and then invest. But the remaining 99 percent of population, which is going only through star categories, are probably going to get it wrong. They will probably need proper advice, even if it is a small sum of money. If it is a big sum of money, they have to find credible advisors. The quantum of mistake or the blunder can be huge.
Some of these platforms/apps are coming out with a flavour of advisory. The robot advisory is currently at rudimentary stage, but it will evolve and grow to a stage where it will be able to match a reasonably good advisor over a period of time. There will be evolution there, but it will take some time.
New users or even experienced investors commit the mistake of sorting funds from the best performance or the star rating. How can a platform like yours show people an alternative route?
Keshre: There is a saying that with great power comes great responsibility. These platforms give power to the users. As Suresh said, the 1 percent can probably do all by themselves but the 99 percent need people like him to invest. The responsibility that lies with us is to enable the high-quality decision-making process on the app itself. It is not as simple as putting in five-star rating funds.
We are clear about things that users should try to do and our app enables that kind of decision-making process. If the user is planning to invest in mutual funds and if they are going self-directed way, they should know equity and debt funds. If they are planning to invest for less than three years, they should not invest in risky equity funds. There are debt funds for them. It is an educational advice that acts like an offer. That is how I started investing. I have been investing for the last 18 years and today I can invest through an app like Groww. It is primarily because I was exposed to the right information. That is how it will happen.
You said you don’t have a simple robot advisory model. What do you have that could enable a user to come to Groww and get the right advice?
Keshre: Instead of telling a user like an advisor, we provide right information for the user, including information about the product in which they are investing, in the most seamless way.
Also, the right education that they need. Investor behavior is same across everywhere, whether they do offline or online. Our job is to make users understand what they are doing. From content and information perspective, we make sure that users are very well informed before they start investing.
Has the KYC changed rules been made slightly more difficult?
Sadgopan: Once upon a time there used to be an e-KYC process and that used to be limited to Rs 50,000. Then there where other processes which used to be simple. But in between, it was an overturn. After that, it became complicated.
For once, we are using mutual fund utility for our clients who want to be helped in investing. If in the initial process, they are not KYC verified, they will have to submit the document to the KYC registeration agency. Once it is on-board, then the entire process is completely online. I don’t know what Groww and other platforms are doing, but currently for once we have to do a KYC process, if it is not done already. Once the physical KYC process is done, it is a seamless online process.
Keshre: One of the best things about the regulator is that at least KYC is centralised across all distributors. If the person has done KYC with some other player, then they don’t have to do the KYC again.
e-KYC was introduced some time back, but there were some complications like you cannot invest more than Rs 50,000. So, a lot of users were starting to invest and again they had to do modified KYC to invest more money. Overall, it is much better than the banking side. But KYC is one entrance for users to start investing.
What is the best way for the first-time investors to choose the investment in some of these platforms to not make mistakes or make smaller mistakes?
Sadgopan: This has always been the problem as far as investors are concerned. Information is there for a long time. But information availability does not mean that they know enough to be able to narrow down to what they want. That problem will exist, unless people want to upgrade themselves enough to be able to make right choices. The customers have to be willing to be educated, but a lot of people are not keen on finance.
That is long road. But what is the short route? What are the things which investors need to do or not do?
Sadgopan: If people have to make a choice themselves and they know what is large-cap, mid-cap fund, there is educational material and people have to go through it. That’s the shortcut for them to understand that this might work or not work.
For example, equity and debt. Debt is for shorter period of time. I have products like that. Equity is probably for a longer period of time. To that extent, you have to educate yourself and pick appropriate products. Unless there is advisory engine which is built in, wherein you put information and the advisory can throw up a short list. In that case, the process of choosing the fund among the short-listed ones become that much easier. But if it is not there, then you have to read up and make up your mind.
You mentioned that there is educational material on Groww. Should that be the starting point? Would your advice be to wait and read the educational material and then come and click?
Keshre: First thing which I will tell is to start investing with just Rs 500. I have realised that the best way to learn is by actually doing it. Start with a smaller amount so that there is nothing much to lose. Once you start investing, it will get much faster. It doesn’t take much time to get the basic thumb rule of investing in place.
If you are investing in equity, invest via SIPs. Start looking for a small sum. If you are looking for short term, go for funds like debt funds. Large caps are less risky than small-cap funds. These are interesting to learn once you start investing. Some funds even allow to start investing with just Rs 100. You can literally start in the first session.