Death and taxes, both certain and both unwelcome. We ward off the first by having smoothies out of algae and bee pollen, and the second by investing smartly, usually in instruments that give us maximum tax savings. Sadly, we may be wrong about our investments.
Swapnil Madankar is a 30-year-old marketing professional working with a multi-national company. He puts his money into mutual funds — from HDFC or SBI — which fall under Section 80C. Both have their offices near his house but, more importantly, he says, “when you invest with a strong brand, you won’t lose money and also you are assured strong return”.
But, his returns tell a different story. Five years ago, he invested in SBI Magnum Tax Gain, which has given a single-digit CAGR return of 6.33% compared to S&P BSE 500, which gave 9.50% return. Similarly, his investment in HDFC Focused 30 Fund also failed to beat the benchmark indices, giving a return of 5.82%. If one adds an inflation rate of 4% and an expense ratio of around 2%, Madankar stands in a precarious position.
This throws up important lessons — following the herd isn’t the best strategy, and the most popular fund house won’t guarantee great returns. This is where new-age wealth techs such as Orowealth, Scripbox and Kuvera come in (See: Lucrative bet). These fintechs offering wealth-management services started cropping up post 2010
. There was higher penetration of technology, more user-friendly interfaces and a better awareness about investment products. Also, the process of completing KYC became faster because of Aadhaar and PAN cards. Using technology, these fintech firms have since helped customers build a well-diversified portfolio. And, today, these young companies are challenging the hegemony of mutual-fund houses (See: Future of investing).
It’s hard for a person to ignore big ad campaigns run by large fund houses, and these can lead him/her to put their money into less-productive schemes. Tech-led advisory firms such as Scripbox, founded in 2012, hop