Top Robo Advisory Myths Busted

Nutan Gupta

28 Mar 2017

The concept of robo advisory has gained momentum over the last couple of years and it has been termed as a popular alternative to traditional financial advisors. However, there are some misconceptions that common people have about robo-advisors.

Here are some robo-advisor myths:

Robo-Advisors are only for young

A lot of people have this misconception that robo-advisors are suitable only for the young who are aged between 23-30. As robo-advisors use advanced technology, there is a delusion that it is suitable for tech-savvy and gadget-loving individuals. However, the truth is that the average age of people who use robo-advisory as a method of investment across the world is 40.

Robo-advisors will replace humans

A larger section of the society thinks that robo-advisors will replace humans in the near future. However, this is not possible as there are people who want control of their own money and want to sit down with their financial planner and discuss each investment personally. This is a human behaviour which will not change easily. So, there are always going to be people who would want to be in charge of their own money, for which a traditional financial platform will be required.

Robo-advisors use pre-constructed portfolios

While a lot of people are under the misconception that robo-advisors use pre-constructed portfolios in order to generate their results, the fact is that robo-advisors construct a personalised portfolio for their clients based on their needs. A robo-advisor generates results based on the client’s risk appetite and financial goals. Robo-advisors show you real-time results based on all the information you provide.

Robo-advisors are riskier

As far as robo-advisory is concerned, a lot of people are under the myth that it is risky and not secure. However, not many know that robo-advisors are regulated and compliance is enforced. All the information that an individual provides is secure as robo-advisors use bank-level security measures to keep a client’s data safe.

With 5paisa, experience 100% automated personalised solutions for both your insurance (Insurance Advisor) and mutual fund (Auto Investor) needs. Just answer a set of very simple questions, and our automated results will suggest the best portfolio that suits your needs.

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mutual-fund

Why to Choose Mutual Funds Instead of Directly Investing Into Equities?

Whether to invest in equities or mutual funds is a question that has plagued every investor. As someone who needs the best value for his/her investment should you invest in equity directly or via mutual funds?

Let’s start by first understanding what these two terms ‘equities’ and ‘mutual funds’ stand for-

Equities- Equities generally represent ownership of a company. If you own any equity in a company, you are a part owner of the said company (depending on how much equity you own).

Mutual Funds – It is an investment scheme which is professionally managed by an asset management company. It pools together the resources of a group of people and invests their money in equities, debentures, bonds and other securities.

Why choose mutual funds over equities?

For people who’ve never invested in either stocks or mutual funds, it is hard to know which is better and where to start. Broadly speaking, if you are a novice investor, mutual funds are not only less risky but also way easier to manage. Here are some ways in which investing in mutual funds is beneficial as opposed to investing in equities -

Diversification

Mutual funds provide more diversification as compared to an individual equity stock. When you invest in equity, you are investing in a single company which has its inherent risk. For example, if you invest Rs.20,000 in buying equities of one company, you could face a total loss if that particular company performs poorly in the market.  

If you invest the same amount in mutual funds, it will be invested in different kinds of stocks and financial instruments, high-risk and low-risk both, so you might not face total loss even if one company does poorly.

Scale of Investment and Lower Costs

For an individual investor buying and selling stocks is a difficult task due to its high price. Thus, any gains made from stock appreciation are nullified if the overall trading costs are considered. Comparatively with mutual funds, as the money is pooled from a large number of investors, the cost per individual is lowered.  

Another advantage of mutual funds is that you don’t need to invest large sums of money. Buying equities for a profitable venture needs huge amounts of money, a minimum of few lakhs. With mutual funds, you can start with Rs.1000 and earn profits on that as well.

Convenience

Keeping an eye on the markets everyday is a time-consuming business, especially if you are investing as a side gig. There are people who spend their lives studying the market and still end up sustaining heavy losses. Though investing in mutual funds does not guarantee high returns, it is stress-free and needs less work as compared to investing in equities.

To sum it up

It is important to remember that mutual funds have their own disadvantages as well. Thus, as with any financial decision, educating yourself and understanding the suitability of all the available options is the ideal way to invest. 


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Top Robo Advisory Myths Busted

Nutan Gupta

28 Mar 2017

The concept of robo advisory has gained momentum over the last couple of years and it has been termed as a popular alternative to traditional financial advisors. However, there are some misconceptions that common people have about robo-advisors.

Here are some robo-advisor myths:

Robo-Advisors are only for young

A lot of people have this misconception that robo-advisors are suitable only for the young who are aged between 23-30. As robo-advisors use advanced technology, there is a delusion that it is suitable for tech-savvy and gadget-loving individuals. However, the truth is that the average age of people who use robo-advisory as a method of investment across the world is 40.

Robo-advisors will replace humans

A larger section of the society thinks that robo-advisors will replace humans in the near future. However, this is not possible as there are people who want control of their own money and want to sit down with their financial planner and discuss each investment personally. This is a human behaviour which will not change easily. So, there are always going to be people who would want to be in charge of their own money, for which a traditional financial platform will be required.

Robo-advisors use pre-constructed portfolios

While a lot of people are under the misconception that robo-advisors use pre-constructed portfolios in order to generate their results, the fact is that robo-advisors construct a personalised portfolio for their clients based on their needs. A robo-advisor generates results based on the client’s risk appetite and financial goals. Robo-advisors show you real-time results based on all the information you provide.

Robo-advisors are riskier

As far as robo-advisory is concerned, a lot of people are under the myth that it is risky and not secure. However, not many know that robo-advisors are regulated and compliance is enforced. All the information that an individual provides is secure as robo-advisors use bank-level security measures to keep a client’s data safe.

With 5paisa, experience 100% automated personalised solutions for both your insurance (Insurance Advisor) and mutual fund (Auto Investor) needs. Just answer a set of very simple questions, and our automated results will suggest the best portfolio that suits your needs.

Have Referral Code?