Wealthy Wants To Make Saving Tax Via Mutual Funds As Easy As Clicking A Selfie

Making investments is like eating at a five star hotel buffet. There are just so many options. For instance, there are about 11,897 mutual fund schemes to choose from. And unlike food most of us don’t know enough about investment options to make the right choice. We often end up taking wrong decisions or let the money sit idle in our bank account. Advice is hard to come by and while some of the more enterprising ones amongst us are able to find time to do months of research, most of us struggle to make a decision.

The normal procedure to invest in a mutual fund is also cumbersome – finding an agent or visiting a branch, filling up the form, writing the cheques, and a 4-day wait period to get issued an account statement for the investment.

Result – More options, Less investments, Confused investor

These gaps have paved way for online ventures in the financial assistance services market, leading to the growth of startups such as Scripbox and Tauro. One such platform is Bangalore-based Wealthy, founded by Prashant Gupta and Aditya Agarwal in September 2015. The main idea is to provide online wealth management in a simplified manner, built from the ground, up with a focus on the needs of customers. It is currently working with a team size of 10.

“Our first task is to simplify the process of wealth preservation and creation. For the majority of us, our money is not working, hard-enough. It’s a complicated process to put your money to work and generate adequate returns for you in a manner that’s personalised for you,” said Aditya.

Tax Saving In Less Than 3 Minutes

With tax saving as their first offering, the founders claim to help investors save tax and complete the entire process in less than 3 minutes. ‘It’s as easy as taking a selfie,” said Aditya. It works on the basic concept that every taxpayer can save INR 1,50,000 under section 80C and calculates the available tax savings through a simple and interactive interface. After analysing the amount that can be invested, the user is given choice to invest the whole amount or a part of it across three algorithmically selected tax-saver mutual funds. It requires a minimum of INR 2,000 to get invested initially.

The user then creates an account and adds personal details as per the KYC regulations of SEBI. After making the payment via net banking or debit card, the user’s investment folio is created and details are made available to the user on his/her dashboard. “Our algorithms also continuously monitor each user’s portfolio and recommend corrective actions as and when required,” added Aditya.

Funds Selection and Range of Returns

Wealthy’s algorithm first applies threshold of fund vintage and assets under management (AUM) to determine which funds are worth investing. Funds are then selected on the basis of rigorous analysis of historical data using parameters such as historical returns, volatility and correlation between funds.

Fund selection and portfolio allocation by Wealthy is based on CAPM (Capital Asset Pricing Model) algorithm, proposed by Nobel prize winning economists – Markowitz, Sharpe and Miller.

The range of returns depends on the strategy chosen by the investor. The system algorithms try to optimise the risk versus return equation of the strategy chosen by each user. Returns can vary from 8-25% depending on the investment horizon, chosen strategy and market conditions.

“People are trusting us. Imagine a 23-year-old investing the entire INR 150,000 with us because they feel that this is working for them,” said Aditya. “Also, with SEBI standardising the commission structure, any chances of biasing the selection for commission gets eliminated,” he added.

Funding And Monetisation

The services are free for users. The startup follows an All-trail fee structure with their mutual fund partners and are paid an annual fee of 1.25% invested with them. “For example, if you invest INR 10,000 in a year with us, we will make INR 125 over that investment in the entire year. We have stayed away from upfront commission structure to align our interests with that of our customers,” said Aditya.

The founders are currently targeting 23-35 year olds who are spending more time and money on the Internet than they are doing offline. Most of Wealthy’s users have income in the range of INR 8 Lakh to 20 Lakh. The portal processed more than 500 orders in the first 5 weeks of launch, whereas more than 60% of customers came via word of mouth.

In March this year, they raised angel funding of $250K from Zishaan Hayath, Abhishek Goyal, Arjun and Rohan Malhotra, Harpreet Singh Grover and Gagan Dugal.

Market Opportunity and Competition

In the US, 50% of households have invested in financial markets, while in india less than 10% households have done so. In China, 100 Mn invest in markets, whereas, for India the number is a mere 15 Mn.

The gap lies in the fact that out of the all the households in the US that have invested, 70% have access to financial advice. Whereas in india, investments are majorly done without any financial advice.

“Our needs have changed and our aspirations have grown. India is a growing economy and most of us today realise that concepts like LIC is an investment or PPF is the best investment option are outdated,” said Aditya.

He further added that in a few years from now, the Indian middle class population will be as large as it is in China today. This means that a lot of people will need advice to invest and manage their money. Even today, there are close to 60 Mn households in India that have enough disposable income to invest their money.

At present, Wealthy competes directly with Scripbox, a Bangalore-based fintech company, working with an online portfolio of four scientifically selected mutual funds. Aditya believes that their focus on tech, team profile and their approach to complicated personal finance questions makes them different from other players.

• Tech focus – Have already automated 95% of backend work which helps maintaining a leaner organisation while it scales.
• Team Profile – Have in-house experts in finance but with majority of the team never being part of the financial services industry. Also, the average age of 10-member team is 27 which means that intuitively, they think like customers and that’s a big advantage.
• Approach – Believes that finance can be fun and that’s the approach they have taken so far to build product and experiences.

Future Plans

The founders’ plan is to grow as a wealth advisory portal where users can get sophisticated financial advice and strategy to invest, irrespective of how much or how long they want to invest.

Right now, most of the services are available to HNIs through banks and wealth advisors. But these entities have minimal or absolutely no interest in middle class, who may have an investment capacity between INR 5,000 to INR 1 Lakh.

“We are trying to bring that sophisticated advice through smart computer interface and using algorithms, and in a way that it is fun to do. In the long-term we want to differentiate ourselves with continuous servicing features, which will be unlike other platforms where most of the customers are on their own after making the first transaction.”

Wealthy’s next product will help its customers choose from nine different strategies to grow their money. For example, if someone wants to invest for a year and wants to keep his/her money safe, the strategy will be different from someone who is interested in investing money for long-term.

“We are bringing the most sophisticated investing experience to the market. For a user we will keep it simple, and all the dirty work of choosing a strategy and making sure that the portfolio is rebalanced every few months to stay true to that strategy will be done by software. Your money will finally work as hard as you do,” said Aditya.

Editor’s Note

With the online finance space burgeoning with many such startups, one thought we really want to ponder upon is the real scope of growth. Data published by government from 2012-13 shows that taxpayers account for just about one per cent of India’s population. However, with over 20.23 lakh taxpayers earning INR 5.5-9.5 lakh (that too in 2012-13), there seems to be a lot of scope. Right now, the space is not crowded and is divided into tax filing and tax saving ventures. It will be interesting to see how these ventures are able to become profitable by targeting the growing taxpayer community in the country.