wealth distribution

How Wealthtech platforms are solving the financial literacy gap faced by first-time

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The massive digital transformation in India has changed the landscape of financial services and wealth management. Financial technology, more famously known as ‘fintech’, offers an umbrella of financial services at the click of a button. Changing investor demographics and an array of new investment avenues drive the fintech industry to provide seamless digital experiences to investment journeys.

Wealthtechs Bridging the Gap

India has had the second-largest number of fintech in the last three years. Fintechs are bridging the gap for investors’ financial literacy and inclusion beyond metro cities. Fintechs are synonymously known as ‘Wealthtechs’ as they provide equal wealth creation opportunities to small retail investors with limited resources and ultra-rich investors.

Though first-time millennial investors are tech-savvy, they require help to decode the financial complexity. Fintechs offer professional advisory along with ease of execution through digital platforms. Their team of wealth managers educates about the importance of financial planning, asset allocation, and portfolio rebalancing through online, personal interactive sessions and investor awareness programs. They discuss investors’ financial goals and offer a host of products in various asset classes. Advisors bring forth investment avenues that best suit the investors’ risk-return profile and help understand the reasons behind the market volatility. They are transparent about associated risks and tax implications in the underlying products. Fintechs are building trust, bridging the gap between investors and capital markets.

New and seasoned investors have witnessed rough weather due to market volatility and have been trapped between emotions of greed and fear. They often make EQ (Emotional Quotient) backed investments which lead to the rush to put their hard-earned money when capital markets are in a bull run. In the desire to earn higher returns, they invest in companies with weak financials. 

On the other hand, investors flee when markets are in a bear phase due to the fear psychosis that grips their minds. The imbalance between greed and fear leads to wrong investment decisions. 

In March 2020, when the Nifty index crashed 38 per cent from its peak, many investors booked losses and fled away from capital markets. On the other hand, investors who remained invested earned handsome returns as the index rebounded by 13.6 per cent in the following three days. A better way to make sound investment decisions is to make them based on IQ rather than EQ.

Wealthtechs help investors make IQ (Intelligent Quotient) backed investments that are strongly based on research and advisory. They have the acquaintance of data and skills to dissect this information that helps them draw meaningful insights and an in-depth understanding of economic scenarios. This allows investors to make wise data-backed investment decisions. 

Asset Allocation and Portfolio Rebalancing

Asset allocation and portfolio rebalancing need to be given equal importance while making investment decisions. It helps to mitigate volatility and concentration risks. Asset allocation also plays a significant role in balancing the risk and returns of a portfolio. Investments need to be diversified between various asset classes like equity, debt, international equity, and gold to balance the risks.

Portfolio rebalancing helps to realign weights in outperforming assets and invest in underperforming asset classes that have the potential to generate higher returns. Investors have primarily known about age-old fixed deposits as a debt 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 hedge against equity market volatility and inflation, and provide capital preservation and regular income. They are also clearing the myth that fixed-income investments are suitable only for ultra HNIs. Investors can choose to invest in fixed-income securities based on their risk-return profile.

Amidst changing regulatory environments, Wealthtech platforms are uncomplicating finance and empowering first-time investors to make wise and timely decisions to achieve long-term financial goals and create wealth.

by,  Ajinkya Kulkarni, co-founder, Wint Wealth



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