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This is How a Smart Robo-Advisor can Help You Chart Your Asset Allocation…   Apr 11, 2018


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HNI (High-Networth Individual) was a buzzword in the mutual fund distribution industry until recently. 

Before ‘fee-only’ advisories mushroomed, only those with a huge investable surplus were getting value-added services.

Risk-profiling and asset allocation—which should be ideally the starting point of any investment plan—were offered as value-added services to customers who could give ‘more business’.

As a result, many investors developed a habit of investing in an ad-hoc manner. But with the advent of robo-advisors, customising investment plans has become possible even for small-time investors.

Do you know?

A dependable robo-advisory platform helps you create your personalised asset allocation plan.

Asset allocation decides your success as an investor.

If you allocate your financial resources based on your asset allocation, you tend to move in the right direction for achieving your financial goals.

The vital question you might want to ask now: Are robo-advisors capable of offering quality advice on asset allocation?

The answer is — Yes.

What are the steps that robo-advisors generally follow?

First step

A good robo-advisory platform will ask for your personal details—name, age, nature of employment, etc. They will understand your financial or life goals and the time horizon you have set to achieve them.

Second step

Besides knowing your goals, it’s imperative to understand how much risk you are willing to take. To get the sense your risk profile, the robo-advisor will ask you a few questions.

Based on your response and information you shared, the robo-advisory platform will suggest a suitable asset allocation plan.

For example, if you are young and have a high-risk profile and your goals will be up for the fulfilment only after 5-7 years; the asset allocation may suggest to put more money in equity-oriented mutual funds.

Conversely, if you are senior citizen and your financial objective is regular income post retirement, it will recommend that you maintain a minimum allocation to equity-oriented funds.

Once a suitable asset allocation is determined, the robo advisor may suggest suitable mutual fund schemes to invest.

Is this service chargeable?

While different robo-advisors give you an asset allocation plan as a value-added service; some of them might charge a percentage fee for your investments. Others will charge you a small fee payable every year, irrespective of your investment portfolio.

Care you should take…

Robo form

First and foremost, robo-advisory platform is an algorithmic tool. Unless, you answer the preset questions precisely and sincerely, it may not generate dependable results.

Therefore, never be in a hurry to complete the questionnaire. Haste makes waste. So take your time to diligently fill it up.

And as said earlier, a lot of your success as an investor largely depends on your asset allocation.

And secondly, while you enjoy value-added services of robo-advisory platforms, you shouldn’t get carried away by their generosity.

Please ensure that the schemes they suggest are backed by proven research. After all, the asset allocation plan created by a robo-advisor is pre-built and customised only to a certain extent. And that is dependent on your feedback to the questions it asks.

The real success of your mutual fund investment portfolio depends on your selection of schemes.

Since there’re thousands of schemes are on offer, for most of investors it becomes confusing to shortlist a few among them. Even the star ratings which are available for free with some platforms don’t help either. Let’s not forget star-rated funds aren’t evergreen and there’s no study that proves they can repeat their past performance perpetually.

PersonalFN Research has identified and implemented key parameters that will help find funds that will outperform in future. Apart from quantitative we also focus on various qualitative factors that help achieve the overall performance of the fund. PersonalFN believes that if the fund houses investment philosophy, process and systems are in place, it will result in a radiant performance of the fund in future. 

The output of our rating system is derived from our stringent scoring model, which ensures that the scheme is tested on various quantitative as well as qualitative parameters and accordingly compared and scored vis-à-vis its peers. The schemes able to pass through our rigorous test and achieve the maximum composite score on all parameters (based on pre-specified weightages) will get higher star rating. 

PersonalFN backs all its services by solid research.

PersonalFN is expected to launch an ultimate robo-advisory platform soon which will provide Direct Plans.

Happy Investing!

Author: PersonalFN Content & Research Team



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