Seek a Robo Advisor if you don't have time to manage investments

Burnt fingers by investing in under-performing mutual funds? Find the brick and mortar advisory services too expensive? Not able to meet financial advisor personally due to work commitments and hectic weekends? Fret not as a growing tribe of automated mutual fund portfolio advisory services are now available.

FundsIndia, Arthayantra, ScripBox, MyUniverse from the Aditya Birla Money stable, BigDecisions and mainstream brokerage houses such as ICICI Securities too offer robo advisory services. Two more robo advisory platforms are tipped to be launched soon. Select asset management companies too have initiated a facility whereby an investor is recommended schemes best suited to meet his goals based on the age and the risk appetite. The saving amount needed each month to achieve the goal too is suggested.

In India, the entire basket of mutual funds is assessed and the recommended funds are based on your risk appetite, age, goals and your investment horizon. In contrast, robo advisors in the US and the UK throw up options of investing in exchange traded funds or index funds, which mirror the index (Nasdaq etc), and hence are low-cost investment options compared to actively managed funds.

"New set of investors cannot do things entirely by themselves. As an investor you need to know which funds to choose, what sort of debt-equity mix to have. Else you would have to visit the advisor's office and discuss. The built portfolios are highly amiable when you are investing to meet specific goals in mind. They suggest any increase or decrease in the investment amount to meet the goals," says Vidya Bala, head- MF research at FundsIndia.

No frills advice and customisation are sought by investors. Abhishake Mathur, head investment advisory services, ICICI Securities, says, "Our internal research shows that customers prefer advice that is specific to their situation and which they can access regularly, on-the-go and at their convenience."

Benefits
Low-cost is one of the magnet pulling fresh investors to opt for the robo-advisory services in India. These automated portfolios are either offered free of cost or at a nominal cost, for instance Rs 1,000 by Arthayantra, compared to Rs 15,000 to Rs 35,000 that a traditional brick and mortar advisor would charge.

There is zero-paperwork involved, says Bala.

"The investing and withdrawal process for investors is also completely online and investors do not need to talk to anyone. Scripbox is so easy to use that we rarely get any questions once accounts have been set up," says Sanjiv Singhal, co-founder & CEO of Scripbox.

Fund selection
Asked about the parameters for funds selection, Singhal says, "Our methodology looks at consistency of performance rather than absolute performance over a reasonably long period and we use multiple variables. We start by defining investment objectives for each portfolio: market growth for equity funds and safety of capital for debt funds. Then we apply a set of filter criteria and finally criteria for consistency of performance. The criteria are all quantitative and there is no human judgment involved."

My Universe uses its proprietary research model termed Optimum Efficiency Model to recommend schemes.

The clients
Not just first-time mutual fund investors, but existing investors too have been lapping up the robo advisory service claim entrepreneurs.

"More than half of our customers are first time investors - not young earners, but people in their thirties. The sophisticated investors understand and appreciate the value of an automated investing account with a scientific and unbiased selection process, one-click investing, annual reviews and tax-efficient rebalancing. They understand how complex some of these tasks can become once you have been investing for a few years," says Singhal.

Customisation
If you are looking to invest in funds that your friend suggested or what you read from your trusted expert in the newspaper you would be disappointed if you opted for the robo-advisory service. There are limitations to the customisation possible.

Once you key in your answers that test your risk appetite and the investment timeframe, then you would have limited options to select a scheme. You would have to follow the recommended investment in the same proportion, else opt for an upgraded advisory facility. Alternatively, you can head to the asset management company's website and invest directly. But one cannot change the funds. ZipSip allows you to invest in a single fund or even make lumpsum investments.

"If you are confident of your choice of funds (not basing it on a tip) then invest directly with the mutual fund company," recommends Singhal, adding that for those looking at individual schemes several options are available in the market.

But other service providers say they don't stop at offering pure robo advisory alone. "If the investor feels the need for additional help or a customised portfolio he/she has the option of talking to our advisors. They will check the portfolio and suggest the changes if needed. Nobody can do away with the human element to advisory. But robo advisory is similar to banking online, which is as efficient and time saving," says Bala.

Even ICICI Securities offers customisation based on the goals and time horizon. "We spend considerable time with our clients to understand their situation and prepare a customized financial plan," adds Mathur.

Out-of-the-box approach
The innovative approach to the process of investing would set the robo advisors apart. There are various value additions that they offer, thanks to the adoption of technology.

You can escape the delay (typically a month's cycle) in setting up an SIP through MyUniverse's instant SIP facility, wherein the first SIP transaction is diverted through the net banking account instead of the traditional cheque-mode and the ECS for the following months is set up before the next transaction date.

Though FundsIndia has been offering robo advisory for more than four years now, the yearly reviews and portfolio re-balancing options have been added in June 2013.

"So, if your ideal asset mix should be 70:30, but the share of equity has fallen significantly because of the performance of a particular asset class, then re-balancing on your own would be a cumbersome task. You would also need to know the current asset mix to be able to re-balance. That's where technology plays an important role and algorithmically the system would recommend the changes required," explains Bala.

ICICI Securities's Track & Act monitors deviations in the customer's target asset allocation, target savings and target portfolio. The platform will automatically prompt for any action required based on the customer's financial plan.

For those looking to switch funds or redeem, the Scripbox service warns the investor about the tax implications.