Internet-based personal finance startups have seen a spike in usage during the COVID-19 pandemic, as more users have flocked to save money, rebalance portfolios and explore safer investment options from home.
Wealth management startups including Groww, INDWealth and Zerodha, among others, have seen faster adoption and more engagement than before, as online services have gained from the pandemic which has put a stop to all offline activity and led to a lockdown.
For instance, Smallcase, which provides digital infrastructure to brokerages to invest in portfolios of stocks and exchange-traded funds (ETFs), has added over 3 lakh investors to its platform since March, compared to 1.27 lakh in the January-February 2020, founder and CEO Vasanth Kamath said.
Smallcase can be seen as a curated basket of stocks. Kamath also said they have seen about 3.5 lakh smallcase transactions since March, compared to about 1.5 lakh in January and February combined.
People transacted on these platforms also at a time when Indian equity markets have hit their lowest points in years, and are seeing a slow recovery, on the back of weak economic sentiment. The benchmark S&P BSE SENSEX hit a three-year-low of 29,133 points on March 18, just before India officially went under lockdown. Since then, it has recovered to about 30,932, still at mid-2017 levels.
Frequently Asked Questions
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“We have seen stockbroking and wealth management firms get a lot more traction during the lockdown. Despite rough markets, investors have taken to online investment routes,” said Harshil Mathur, co-founder and CEO of payments startup Razorpay.
During the pandemic, although investors redeemed mutual funds in March when markets fell sharply, overall investments have still risen significantly. The growing opportunity for online wealth management firms has also made these startups push forward their expansion plans.
Online investment startup Groww, which so far provides a platform to invest in mutual funds, plans to start direct equity investing in the next month. While it is currently available by invite, it will roll out to the public in the next month, said Lalit Keshre, co-founder and CEO of Groww.
Since its mutual fund investment option is free, Keshre sees direct equity investing as the primary revenue generator going forward.
“While new users on Groww are increasing by 40 percent month-on-month, compared to 20-30 percent earlier, I cannot disclose further numbers,” Keshre said.
New-age investment apps are also acting, or looking to act as wealth managers, and are finding traction with millennials and new investors -- the audience a Groww or Zerodha caters to, as well as high-net-worth individuals or experienced investors, due to which top venture capital funds are backing them. While Groww and Smallcase are both backed by Sequoia Capital, INDWealth, which describes itself as an “AI-driven financial advisory engine for HNIs” is backed by Tiger Global Management and Steadview Capital -- both active investors in Indian unicorns and tech start-ups.
Investors stay cautious
INDWealth’s founder and CEO Ashish Kashyap, who was earlier CEO of travel portal Ibibo, declined to give out specific numbers, but said that the number of new users has gone up 5x, while engagement on the app has gone up 2x in the last 60 days.
COVID-19 is also changing investor patterns, driving them towards caution. “We have seen a lot more money move into safety. People are buying more gold bonds, and are rebalancing their portfolios to manage risk,” Kashyap said.
“COVID-19 has helped us as investors understand the importance of managing risk during such times; smallcases being a portfolio by definition helps manage risk by design while building wealth for the long term. So it’s a good avenue for new investors to access,” said Kamath.
To be sure, while personal finance startups are seeing early adoption, a lot of the growth for some players has to do with free services, making it unsustainable in the long run, industry insiders warn. “High percentages of growth are because of a low base effect -- many of these players have only a few active users -- and/or because it is free. Their long term potential will depend upon whether they can charge for services and still remain as popular. But the change of personal finance towards online mediums is here to stay,” an investor in the space said, requesting anonymity.Disclosure: Moneycontrol has partnered with Smallcase Technologies to invest directly from its platform.