(This article was first published in The Hindu.)
Navigating the world of personal finance can be a tough task, especially for those of us who did not grow up with the language of stocks, bonds and mutual funds.
Thankfully though, the Internet has democratised the space, and smartphones have made it easier than ever to learn about, and invest in, financial instruments.
From using Zerodha to invest in equities, to researching financial instruments on MoneyControl, to purchasing mutual funds on Kuvera, it is entirely possible to grow your net-worth without making any human contact. The fintech space in India is booming with start-ups who want to help young people save more. They do this by providing the technology and expertise to demystify the bureaucratic world of personal finance.
And users are embracing this development, especially on their phones. Companies like Zerodha, Smallcase and Scripbox cite that around 50% to 70% of their customers access their platforms on their mobile phones, and expect this number to increase. Sanjiv Singhal, founder and COO of Scripbox, a mutual fund investment app, says, “There is a certain profile of customers for whom an app is the preferred way of investing, and this demographic is on the rise.”
Why are investors turning to the Internet? “Mobility and accessibility,” says Dr Kailash Nadh, CTO, Zerodha. These platforms also use their technical know-how to improve upon existing services. On Kuvera, for instance, users can upload their Consolidated Account Statement, a document listing all their mutual fund investments, provided by an authorised source. Kuvera will then present the same information in a more user-friendly way, giving users a debt-to-equity ratio, using visuals to help the user assess her portfolio.
Some investors today are even bypassing human financial advisors in favour of Internet-based robot advisors who will use an algorithm to propose a financial portfolio for you based on certain critera. But experts urge caution. “One needs to understand that investing is not like e-commerce shopping,” says Manoj Chahar, founder and CEO of MoneyFrog, an online financial planning platform. It requires a lot more research and due diligence, and the convenience of using a phone does not always make it the best bet. If you are considering using an Internet-based platform as your primary investment tool, here are some questions to consider:
Is free actually free?
A lot of apps advertise that you can “invest for free”, but there is often an asterisk somewhere in there. Go through the FAQs to make sure that the service is actually free. There is no harm in paying a certain fee, as long as you understand what you are paying for. If the company is getting a commission or is charging you a fee, it should be transparent about how that fee is calculated.
Have you done all your research?
Before you invest in any instrument, make sure you have carried out the required research. Do not rely solely on what is shown on an app. For instance, even if a particular mutual fund or stock is promoted on the platform, it might not be the right one for you. The best financial instruments vary depending on factors such as your income and financial goals, so make sure gather information from other sources as well.
Who is running the company?
Get a sense of the people behind a company before you invest in what they are selling or recommending. “Find out if they have prior portfolio management experience or whether they are going to learn on the job with your money on the line,” says Gaurav Rastogi, CEO of Kuvera, an online mutual fund investment app.
Is your data going to be secure?
Ensuring the security of your data is extremely important, more so when it is financial data. It is easy to get lured by glossy looking user interfaces and smartly written marketing content, but you could compromise your financial security if you do not read the fine print, or worse yet, if there is no fine print. If something looks dubious, stay away from it. Go through the ratings and comments that the app has received to help you make an informed decision.
Do you really need an app?
Is there actually a need for an app to do the work you are looking for? An app allows you to check your investments on a daily basis, but you do not actually need to monitor your investments frequently if you are a long-term investor.
Checking too often can lead to unnecessary churning — buying and selling which could actually hurt your portfolio. For most long-term investors, the investment frequency is usually once a month, or just a few times a year. Scrolling through an app to monitor your gains and losses every day is not a great way to spend your time.