Affordable advisory services are coming up in a big way with an increasing number of youths and millennials turning to the equity market amid Covid-induced restrictions.
On the last day of March, the government declared a massive cut in the interest rates on small savings schemes from the beginning of the first quarter of the financial year 2021-22. An overnight rethink drove the government to revoke the decision the next morning as an ‘oversight’.
The incident took place in the backdrop of Assembly elections in four states and a Union Territory and that stoked the anticipation of a reversal after the polls. The rates in question yield slightly better returns to investors as against what commercial banks offer. If the cuts are introduced then the rates would come down to such a low that it would be a disincentive for the investors.
In such a scenario, an individual with some amount of disposable income would search for an alternate asset class to park his or her money, where the capital invested will not only be safe but will also grow. In this situation, the equity market seemed to be the only option to them as the benchmark indices have returned more than 71 per cent in the last one year.
In the equity markets, it is a problem of plenty for an investor. Selecting the right guide who can handhold the investor in choosing the sector and then the company to reach the desired goal. For high net-worth individuals (HNIs), there is a solution in the form of portfolio management services (PMS). But it has an entry barrier set at a ticket size of Rs 20-50 lakh, besides a host of compliance issues that need to be addressed.
In such a scenario, one wonders where would the retail investors go, who should they approach, who can help them take informed investment decisions. Where man leaves gulfs, technology comes handy to bridge the two ends.
Modern-day technologies like Artificial Intelligence and Machine Learning has helped us come up with various investment tools and apps to make equity investing simpler, based on the concept of affordable advisory. Those entering the markets with a long-term investment horizon also have the solution available to them in such apps, which provide them such facility with stock recommendation and up-to-date research data is provided to them at no cost.
These investment platforms provide actively managed portfolio at affordable pricing. Once subscribed to this platform, there is no need for the investor to do a research and track the markets. Based on the investor’s profile and risk appetite, submitted at the time of subscription, the service provider takes care of giving unbiased and streamlined advice.
TejiMandi, a technology platform from the stable of Motilal Oswal Financial Service, is one of the leading apps that is in the forefront of providing such services. “There is a dire need for affordable advisory in the country in the wake of explosion in terms of number of new investors being added to the market in last one year or so,” says Chief Investment Officer Vaibhav Agrawal.
After the lockdowns were lifted last year, the markets witnessed a flurry of investors. In fact, nearly one crore demat accounts were opened with the depositories. The trend continues this year too with the second wave of Covid-19 pandemic restricting our movements. More than 30 lakh accounts were opened between January and March this year. Majority of these accounts are owned and operated by young retail investors.
There is a massive potential for businesses like TejiMandi, believes Agarwal, as interest in direct equity investment soars among retail investors. “We have just begun the operation and we intend to have one lakh subscribers in the first year itself with a revenue target of Rs 10 crore. In five years, our target is to have 10 crore subscribers with a subscription revenue of Rs 100 crore,” he says.
Besides lower interest rate regime, what drives investors to take the plunge in equity market is the passive investment approach adopted by mutual funds (MFs). Returns generated have been wooing the investors into direct investing.
The providers of such platforms are primarily targeting investors in the age-group of 24-45 years, basically the millennials who are interested in the stock market, MFs and PMS. This is the category where one finds traditional products like bank fixed deposits (FDs), LICs, PPFs and postal savings instruments unattractive and looks for options that are more modern-day.
The ecosystem surrounding these platforms is familiar to millennials as it offers an all-weather portfolio. Through their respective apps, the investors are communicated about which stocks to buy, when to buy and when to sell. The buying and selling can be done by investors with their existing demat accounts. “We have a tie-up with Zerodha, 5Paisa.com and other top 10 brokers of the country and also help our subscribers to open a demat account if they wish to do so,” says Agrawal.
To make the advisory services literally affordable, the providers set their fees accordingly. TejiMandi charges Rs 149 per month for a six-month plan, Rs 199 per month for 3 months and Rs 249 for one month. Investment volume has no bearing with the fees.
TejiMandi selects and manages a portfolio of 15-20 stocks for the investor, based on his or her risk profile derived by the artificial intelligence module of the app. This module also regularly rebalances the investor’s portfolio. The rebalancing is a process in which the AI-based tool recommends the investor when to buy new stocks and when to sell old stocks. It also gives the investors regular updates on stocks held in their portfolio and keeps them informed about the rationale behind buy or sell recommendations.
AlphaBee, a trading app floated by Choice Broking Group, has a feature of ‘Long Only’ stocks. Once the investor flags off this feature, the app does not allow sell of these stocks. “We intended to create long-term value for the investors, users are not allowed to carry out intra-day trades, they cannot trade in future and options contracts, and it supports only delivery-based orders in the stocks that have been flagged-off as Long Only,” says Amit Singh, Chief Strategy Officer.
AlphaBee offers distinctive features like Collections, Stock Baskets, Simple Company Profiles, Portfolio of Super Investors, Simplified Order Window, Portfolio Analysis and Long-term Bets. “The distinctive features are available to all the investors who are the clients of our broking arm Choice Broking Ltd as well as to those who just want to glance through our research. The company generates revenue when the investor uses the information available and trades on its basis,” says Singh.
The Collections feature is essentially the listing of stocks across multiple themes. These themes are being selected by the product team across a wide variety of topics. It shares various dimensions of stocks that a new investor in the capital market may not be aware of. For example, it has a collection called ‘She Heroes’ which lists companies where women leaders are driving their businesses.
Another collection is called ‘Invest in Brands’ which links prominent brands to their entities. This helps the new-age investors identify companies easily, like not many people know that ‘Royal Enfield’ is a brand of Eicher Motors or ‘Jockey’ is of Page Industries for India Distribution.
The app is designed with multiple stock baskets across categories for investors who do not have enough time to spend on research. “The baskets are created by our analysts who continue to monitor the performance of the underlying companies on a regular interval. The feature is also equipped with the rebalancing facility for tweaking the portfolio based on the recommendations taken by the research team,” says Singh.
With young and millennial investors thronging the capital markets, there’s a wider area for affordable advisory services to grow. The companies in the field have an innovation-driven business model based on technology upgrades and interactive analyses. While Agarwal believes TejiMandi will being in a disruption to the domain of affordable advisory services like what Jio did to the telecom sector, Singh thinks that AlphaBee will instil in the investors a mindset for long-haul investments.
yagnesh@outlookindia.com