For every salaried individual, saving money and being able to grow it smartly is always a challenge. Until a few years ago, saving only meant fixed deposits or investing in gold or real estate.
But over the past few years, mutual funds have started performing well and moreover, people have become more aware of investment options and are looking for other avenues, even if it means starting with a small amount. But the biggest confusion is that one doesnâ€™t know which is the best mutual fund to invest in, or what is the best way to manage money.
Hoping to solve this confusion, there are have been a number of FinTech startups that have emerged over the years, either as investment platforms or as advisory services.
â€śEarlier, banks were selling financial products to High net worth individuals. But now people earning much lesser, like Rs 50,000 a month also want to do a systematic investment plan (SIP) of as low as say Rs 5,000 a month. It doesnâ€™t make sense for banks and physical advisors to serve this market and hence thereâ€™s a requirement for online tools,â€ť says Madhukar Sinha, founding partner of India Quotient.
These startups also offer robo-advisory services, where artificial intelligence (AI) is used to give automated investment plans. The advantage here, experts say, is that it is unbiased and personalised, making it convenient for people to manage their money.
There are older players in the market like FundsIndia which provide a combination of advisory and online execution services.
â€śProviding a platform online makes the task of investing paperless, easy, convenient and profitable to people. And it makes it extremely easy to track the investment regularly. And we have a robust platform with robo-advisory combined with an army of advisors willing to help,â€ť says Srikanth Meenakshi, co-founder and COO of FundsIndia.
All a user has to do is sign up with a few basic details and decide how they want to invest based on all the options available. FundsIndia provides every financial product right from equity investments to mutual funds and deposits.
There are other players in the market operating on similar business models like Fincart, Arthayantra, Clearfunds and Wixifi.
There are also some newer players trying to innovate in this space like My Money Karma, which hope to cash in on financial advisory services. However, My Money Karma terms itself as a financial literacy company.
Founded four months ago by Varun Agarwal and Ram Subramaniam, MyMoneyKarma is an analytical tool, which lets users see their complete finances under one platform.
This means that once a person signs up with a few basic details, MyMoneyKarma brings all your transactions, credit history and bank accounts details under one platform.
According to Varun, having a single window for all your finances helps make quicker decisions.
However, unlike other players in the market, this is a purely analytical tool. Unlike FundsIndia, you cannot make transactions or investments on MyMoneyKarmaâ€™s platform.
But what it does is, that it analyses your profile and based on your data gives you recommendations on how your finances or your loans can be managed better.
â€śYou can be with us for a life cycle. We will keep on recommending you on your financials. And when you can see all your financials under one platform, it gives you the leeway to decide for yourself how your finances are. Say your money is lying in a particular account, then weâ€™ll tell you where you can put it based on your convenience and what the best way to grow it is,â€ť Varun adds.
MyMoneyKarma, which is currently being incubated at Hyderabad-based startup incubator T-Hub has partnered with several banks and even tied up directly and indirectly with the Reserve Bank of India (RBI).
However, being still in the Beta phase, MyMoneyKarma is not open to all and is currently working on an invite-only basis.
â€śWe are building trust, so itâ€™s very important that we get a pocket of customers that we are targeting. We are getting feedback from our customers and accordingly building the site,â€ť Varun adds.
Ram Subramaniam and Varun Agarwal of MyMoneyKarma
Within a month, MyMoneyKarma will start referring financial products to its customers after analysing their finances. Be it loans, mutual funds, insurance products, the idea is to eventually offer an entire gamut of financial services. However, it will first start with loans and then move on to other financial products.
The business model of these financial advisory services startups either works on a small convenience fee or based on commissions.
FundsIndia does not charge its customers anything. Instead, the mutual fund houses pay FundsIndia a servicing fee ranging anywhere between 0.1-1% depending on the type of scheme.
In the case of MyMoneyKarma, it has a similar business model that works on reference. Every time it suggests a card or a financial product to you and the customer goes for it, the bank or the fund house pays MyMoneyKarma a commission for it.
But for an industry that is seeing an influx of startups, how viable is this business model? And are these businesses scalable?
Analysts say that there definitely is a market for these online advisory firms, especially with millennials getting more aware about the need to manage their money. Also, there are a number of options available now right from SIPs to mutual funds and stocks.
While this is a fast growing market, it is still at a nascent stage. Madhukar says that no one apart from incumbents like FundsIndia have really reached a stage of monetising their model.
Currently, while most models like FundsIndia work on commission-based models, there will also be many, which will work on subscription or distribution/ad-based models, he adds.
However, the market is still very young and will take some time to mature.
Rajeev Menon, Partner at Anthill Ventures says that the problem with startups earning through the commission model is that there is a chance that the advice given may be biased and based on who is paying the platform more commission. Thus, credibility becomes a question.
A better model to follow, he says is where the startup, as an advisor, is getting paid for the customerâ€™s success, or you charge every transaction.
Here he takes the example of a startup called SmallCase. This startup creates customised bundles of mutual funds or stocks and lets you create bundles. It combines advisory with stock bundles. And every time you buy a bundle, there is a fixed fee that is charged.
Other startups such as Wixifi also charge customers, where it charges a small percentage on every asset managed through its system.
However, countering the point of a bias coming in, these startups, especially FundsIndia and MyMoneyKarma work with robo-advisory services or in MyMoneyKarmaâ€™s case, data-based computer generated advice, which ensures there is no bias.
However, in the case of a model like MyMoneyKarma, where the focus is more on holistic management of finances and pure advisory services, Madhukar says that currently the problem is more of people knowing what they want but not knowing how to do it, which is why transaction-based business models are growing faster.
An advisory-based model such as MyMoneyKarma will definitely work, but that market will still take a lot more time to mature. Itâ€™s a level two problem, and will eventually come into the picture, he adds.
This article has been produced with inputs from T-Hub as a part of a partner program.