Millennials love investing via apps, but are they aware of the pitfalls?

As most of us take to the internet for the simplest of tasks, many millennials have also taken to apps and online platforms to invest. Several financial apps such as Fundsindia, Kuvera, OroWealth, Invezta, Kuvera, Zerodha and Groww allow you to invest in a host of mutual funds after spending just a few minutes to get on-boarded.

Start investing within seconds

Ease of transaction is the biggest benefit for millennials. Get the know-your customer (KYC) process done in minutes, completely online, link your bank account and you’re good to go. Saurav Basu, Head of Wealth Management at Tata Capital says, “The financial apps are providing tutorials to investors, conducting video interactions with the fund managers, educating new investors with blogs, newsletters, etc. that help investors make an informed investment decision. Also, the interface is easy, which makes investing an enjoyable experience.”

You can invest in them through systematic investment plans or lump-sums. And some apps also offer corporate fixed deposits and even equity shares. Others offer you goal-planning: buying a care, home, a dream holiday or even a comfortable retirement. Once a timeline by which you want to achieve those is given, the app recommends a bunch of funds to invest in.

Many such apps offer mutual funds through direct plans. These plans do not have distributor costs embedded in them. “The savings made in operating expenses remain invested in the fund and thereby start generating returns of their own. Thus, direct plans end up generating higher returns than their regular plans,” says Naveen Kukreja, CEO and Co-founder, Paisabazaar.com.

Surat-based investor Kalpesh Sharma is in his late 20s and has just opened an account with an online investment app. So far, he has been investing on his own by browsing through magazines about schemes he felt he should invest in. Eventually, he realised the need for guidance as he saw his mutual fund schemes in losses despite their benchmark indices giving positive returns.

Two years back, he came across an online app that sensitized him to goal-based investing as well as spoke about the importance of a risk profile as a crucial step before investing. Kalpesh was impressed; he opened an account on this app, transferred his existing mutual fund schemes here and started investing. The advisor at this app firm reviewed my portfolio and suggested many changes for repairing the portfolio. From 10 mutual fund schemes, Kalpesh now invests in just four. His portfolio has also been doing well, despite the COVID-19 induced market volatility.

“Millennial investors need hand-holding. You must not invest in schemes based on their past performance or just look at recent performance,” says Neelabh Sanyal, COO and Co-Founder, Kuvera.in.

The pitfalls in apps

But don’t jump right in, just because you get to invest in direct plans. . If you’re investing in mutual funds for the first time or are still in your formative years of investments, there are high chances that you need someone to hold your hand. “Apps that provide personalised investor guidance in the form of fund recommendations, analysis of market trends and various online tools and calculators for informed investment decision-making hold the edge,” says Kukreja.

Although many apps offer a lot of reading material, the onus is on you, the investor, to understand mutual funds first.

Vijay Krishna Kuppa, Co-Founder, Orowealth says, “Novice investors don't understand the risks associated with investments, irrespective of the asset class. For example, most people believe that mutual funds are completely safe and give guaranteed returns like fixed deposits.”

Some of the investment platforms seem to advertise and recommend specific mutual fund schemes of certain AMCs more than others since they have tie-ups. “This is not a legal practice, but some of the financial apps are resorting to this tactics,” says Amit Kaushik, CEO of Invezta.

“Do a bit of your own research and don’t just go with your app’s recommendations, with your eyes shut,” says Parijat Garg, a financial advisor. Many apps simply sort schemes based on their performances. What’s worse, a sector fund can be compared to a diversified equity scheme, giving you a mis-leading picture.

Is your investment app popular?

Ask around if people have heard of the app through which you wish to invest. Garg says, “Go through the customer reviews and user ratings on Google play store or Apple App store and understand typical challenges faced by the existing investors. Consider poor reviews with one or two stars from recent dates and see the challenges investors are facing.” This way, you know the shortcomings before signing up and there are no surprises.

The larger the number of funds that your app has tied up with, the better. The information about the settlements, cut-off timings to invest and redemption should be transparent.