Robo Advisors & Algo Investing

Investing used to mean calling a broker or meeting a financial advisor. Now, algorithms do the work.

1. What is a Robo Advisor?

A digital platform that provides automated, algorithm-driven financial planning services with little to no human supervision.

How it works:

1. You answer a questionnaire (Age, Income, Risk Appetite, Goals).
2. The Algo builds a portfolio for you (e.g., 60% Equity, 30% Debt, 10% Gold).
3. It automatically rebalances (sells high, buys low) to maintain the ratio.

Examples in India:

• Scripbox / Kuvera / Groww: Goal-based investing (Semi-Robo).
• Smallcase: Thematic investing (e.g., "Electric Mobility" basket).

Pros:

• Low Cost: No expensive advisor fees (1-2% saved is huge).
• Unbiased: Robots don't have emotions or hidden commissions.
• Disciplined: Automated rebalancing.

2. Algorithmic Trading (Algo Trading)

This is for Traders, not Investors. Using computer programs to execute trades at high speed based on defined rules.

Example Strategy:

"If 50-Day MA crosses 200-Day MA AND RSI > 60, Buy 100 shares of Reliance."

Types:

• HFT (High Frequency Trading): Millisecond trades (Institutions).
• Retail Algos: Tools like Streak (by Zerodha) allow you to create strategies without coding.

Risks:

• Technical Glitches: If the code fails, you can lose millions in seconds (Flash Crash).
• Overfitting: A strategy that worked in the past may not work in the future.

3. Smallcase (Thematic Investing)

A middle ground between Mutual Funds and Direct Stocks.

• You buy a "Basket" of stocks based on an idea (Theme).
• Example: "Rising Rural Demand" (Tractor companies, FMCG).
• Ownership: You own the stocks directly in your Demat account (unlike MF units).
• Fees: Subscription fee + Transaction charges.

7-Day Action Plan

Day 1: Explore Smallcase. Look at the "All Weather Investing" smallcase (Equity + Gold + Debt).
Day 2: Check out Kuvera or Goalwise (now Niyo Money) to see goal-based planning.
Day 3: Understand the difference between "Direct Plan" and "Regular Plan" MFs. Robo advisors usually offer Direct Plans (0% commission).
Day 4: Visit Streak.tech (if you trade). Try creating a "Paper Trade" algo.
Day 5: Read about the "Flash Crash of 2010".
Day 6: Compare the fees of a Human Advisor (1-2% AUM) vs a Robo Advisor (Flat fee or Free).
Day 7: Decide: Do you need a human to hold your hand during a crash? If yes, get a human advisor. If you are disciplined, go Robo.

Quiz

💡 Final Wisdom: Technology is a tool. It can execute your strategy perfectly, but YOU must define the strategy.