Investing How Innovations in Investing has Helped Retail Investors May 16, 2019May 17, 2019 Deepan Datta 2 Comments Innovation, Investing, Mutual Funds, SIP Earlier, the investment space was mostly confined to the social elites, as entry barriers and lack of knowledge made common people difficult to enter the market. But, the turn of the 21st century can be considered as a rising sun for the Indian investment space. Technological innovation, smart product offering by mutual fund companies and easily available information have not only made investment attractive for investors, but also a thriving market for investment companies. This can be seen with that asset under management in India has increased from a mere Rs 4.17 lakh crore in 2009 to Rs 24.58 lakh crore in 2019, an increase of more than 5 ½ times in a span of 10 years. This blog post will focus on innovations in investing happened in the last decade and how it has affected the market. Robo Advisory Robo advisory is the outcome of the emergence and evolution of fintech space. The recent growth in the mutual fund sector can be attributed to the contribution of robo-advisory. Robo-advisory can be categorised under the class of financial advisor, that works based on a set of algorithm and data analytics. The robo advisory platform guides the investor right from the start of the investment process to the end with no human interference. One of the major benefits is, it rules out the emotions and results are free from bias to any type of particular fund. Around, more than 40 robo-advisors are operating in India through online mode and is becoming a popular tool for financial planning among investors. FundsIndia, Scripbox, Goalwise are some popular robo-advisory platforms in India. Systematic Investment Plan (SIP) This has been the game changer for the sector since its introduction in the early 2000s by Franklin Templeton. It allows monthly investment in open-ended funds as low as Rs 500, making it accessible to lower income class people and gives the opportunity to create wealth over a long period of time. The main advantage of SIP investment is, it factors in volatility, meaning when the market is in a bearish phase, more units are bought and when the market is trading higher, lower units are bought, thus lowering the average acquisition cost. The main idea of SIP is to create wealth through a disciplined approach to investing. Value SIP Also known as Value Averaging Investment Plan (VIP) and is mostly offered by Robo Advisors. The idea is to invest a higher sum when the market is lower and lesser amount when the market is at its peak. Still, in its initial phase, Value SIP helps in to increase the return percentage and lower cost. The only disadvantage of this system is, investors should be ready to keep a lot of liquid cash to take benefit of the opportunity. Smart Investment Product Earlier there was a notion that investing in the market is a very risky affair and losing capital is very high, but over the last decade, mutual funds managed to change this notion. Introduction of new fund types also helped to reach out to more investors who are averse to risk and also solves the problem of low returns. Funds like, Index Funds, Arbitrage Funds, Balanced Funds, Gilt Fund, Fund of Funds has helped to churn out more return with minimum risk over medium to a long period of time. Direct Plan Direct Plan was introduced in 2013 and has given more power to the hand of investors. Direct Plan lowers the Total Expense Ratio (TER), by excluding the agent and distribution commission as the fund is directly purchased from the asset management company either through online and offline mode. A percentage point less TER helps to generate extra 2-3 per cent of return over a long period of time compared to growth option. Conclusion Innovation is the key to any market to flourish in this constantly changing world. The end benefits are numerous, which can also be noticed in the mutual fund sector also. In the mutual fund sector, we can witness that innovations has simplified investing and has unlocked tremendous value, both for investors and the sector.
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