How Wealthtech Platforms Solve the Financial Literacy Problem Facing New Investors

The massive digital transformation in India has changed the landscape of financial services and wealth management. Financial technology, popularly known as “fintech”, offers a set of one-click financial services. Changing investor demographics and an array of new investment avenues are driving the fintech industry to deliver seamless digital experiences to investment journeys.

Wealthtechs are bridging the gap

India had the second highest number of fintechs in the last three years. Fintechs are bridging the financial literacy and inclusion gap for investors beyond metropolises. Fintechs are synonymous with “Wealthtechs” because they offer equal opportunities for wealth creation to small retail investors with limited resources and ultra-wealthy investors.

Although new millennial investors are tech-savvy, they need help decoding financial complexity. Fintechs offer professional advice as well as ease of execution through digital platforms. Their team of wealth managers educates on the importance of financial planning, asset allocation and portfolio rebalancing through personal interactive online sessions and investor education programs. They discuss investors’ financial goals and offer a host of products in various asset classes. Advisors suggest investment avenues that best suit the risk-return profile of investors and help understand the reasons for market volatility. They are transparent about the associated risks and the tax implications of the underlying products. Fintechs build trust, bridging the gap between investors and capital markets.

New and seasoned investors witnessed harsh weather conditions due to market volatility and were trapped between emotions of greed and fear. They often make investments backed by the EQ (emotional quotient), which causes them to rush to put their hard-earned money when the capital markets are hot. In the desire to obtain higher returns, they invest in companies whose financial situation is weak.

On the other hand, investors flee when the markets are in a bearish phase due to the psychosis of fear that invades them. The imbalance between greed and fear leads to poor investment decisions.

In March 2020, when the Nifty index crashed 38% from its peak, many investors took losses and fled the capital markets. By contrast, investors who remained invested saw handsome returns, with the index rebounding 13.6% over the next three days. A better way to make sound investment decisions is to base them on IQ rather than EQ.

Wealthtechs help investors make IQ (intelligent quotient) backed investments that are heavily research and advisory based. They have the knowledge of data and the skills to dissect that information which helps them derive meaningful insights and in-depth understanding of economic scenarios. This enables investors to make sound investment decisions based on data.

Asset allocation and portfolio rebalancing

Asset allocation and portfolio rebalancing should be given equal importance when making investment decisions. It helps to mitigate volatility and concentration risks. Asset allocation also plays an important role in balancing risk and returns in a portfolio. Investments should be diversified across different asset classes like equities, debt, international equities and gold to balance risk.

Portfolio rebalancing helps realign the weightings of outperforming assets and investing in underperforming asset classes that have the potential to generate higher returns. Investors are primarily familiar with age-old fixed deposits as a leveraged investment product.

Wealthtechs are introducing new age tools to diversify investment portfolios and achieve their financial goals based on their risk and return profiles. They offer a basket of fixed income assets that protect against stock market volatility and inflation, and provide capital preservation and regular income. They also dispel the myth that fixed income investments are only suitable for ultra HNIs. Investors can choose to invest in fixed income securities depending on their risk-return profile.

Amid changing regulatory environments, Wealthtech platforms are simplifying finance and empowering new investors to make smart, timely decisions to achieve long-term financial goals and build wealth.

by, Ajinkya Kulkarni, Co-Founder, Wint Wealth