Tech in Your Wallet: How Digital Finance is Reshaping Personal Wealth!

What are the key advantages of technology in personal finance?

Let me just share some of the changes and the resulting benefits, which are self-evident.

Let's talk about the speed of information, first. When I founded Value Research in 1990, I used to wait for the postman. Mutual funds used to calculate their NAVs every three months, and they would publish them in some newspaper, which was very difficult to get a hold of. So, imagine, I was getting a five-month-old NAV-calculated over three months, and published two months later.

The next progression came with the invention of fax machines, and there was an open-end fund where the NAV was calculated every day. At first it was sent to me on a weekly basis. Now it happens daily via email. I no longer have to wait for the postman.

So, imagine the speed at which the value of your investment is now calculated. Earlier, we used to wait for the next morning's Economic Times, open the stock pages, and figure out how prices had moved.

Economic Times had a system where any stock hitting a 52-week high or low would be bolded. If you saw the stock pages were very dark, it meant there were many highs or lows. You'd look at things and try to make sense of the numbers, whether they were close to the highs or lows or where the market was. So, information exchange and access to data have been transformed beyond imagination.

The next change is the speed at which you can remit money. Earlier, you had to go to a bank to make a draft. Now, you can do it through UPI (Unified Payments Interface). Not only that, but authentication has become much easier.

In the early 90s, KYC wasn't even required, and a PAN number wasn't mandatory either. Only when the Prevention of Money Laundering Act was implemented did these things become mandatory. That made validation complicated and anxiety-inducing. After the implementation of the act, you had to fill in two pages of information - your name, address, father's name, and other details.

Even today, KYC causes friction. Although I've lived through the days when I had to fill in two pages just to make an investment, my children would stop investing if they had to go through that. I still remember how difficult it was - getting an application form itself was a privilege. When Morgan Stanley and Mastergain were launched, people queued up on Bahadur Shah Zafar Marg just to get a form.

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Now, imagine everything happening digitally. Back then, setting up an SIP (Systematic Investment Plan) required post-dated checks, and people were always afraid that their checks might bounce. Investment isn't an obligation, but a bounced check could impact your credibility or violate a contract.

There were even forgeries where people replaced those 12 checks with their own form. Then laws were put into place to ensure that the person whose check was used was the one investing, and the redemption proceeds would go to their bank account. This made mutual funds much safer.

The third transformation was the lower costs - digitally investing means you no longer need to print forms or write checks. You can move money quickly, get confirmation instantly, and receive SMS updates for a two-factor authentication. All this has been transformative. Combine it with online banking, Aadhaar, and Jan Dhan accounts, and you'll see how dramatically things have changed. Earlier, even having a bank account was a privilege.

Your ability to automate is magical. The Rs 20,000 crore invested monthly by individual investors in this country through SIPs is possible only because people can do it through smartphones, with their bank accounts, and with UPI at the backend. Right from onboarding a client to customising their portfolio, getting started with investing has become so easy. For instance, if you come to Value Research Online and set up your portfolio in five minutes, we can import your entire transaction history across mutual funds, stocks, and NPS (National Pension System) and provide you with a detailed picture of your net worth. Simply onboard your portfolio on the My Investments dashboard.

That's not all. We've gone a step further. Our advisory services can now tell you which of your investments are good or bad, all with the kind of sophistication that would have required an organisation of 50 people to work manually in the past. Today, even a small investor with Rs 5 lakh or Rs 2 lakh worth of investments has access to this level of service, enabling them to make smart, informed decisions. You can check out Fund Advisor, it offers bespoke solutions to help you become a better investor.

Through our platform, extreme personalisation, convenience, and customisation are possible, allowing each investor to be treated uniquely. Consider 20-year-olds starting a job, each of them could have completely different aspirations. One might worry about his sister's wedding in two years, another might want to take care of his family, while a third might dream of a holiday in Europe. They may all have the same earning capacity but their expectations vary dramatically. The ability to customise an investment plan based on these unique needs is now possible.

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A financial advisor couldn't address such varied needs at this ticket size. But today, technology and digitisation have made it possible. Thanks to the digital roadmap and the digital workflow, you can now go online and get a loan in just 15 minutes. They will view your investments and loan you money. This is because the registrars have enabled mechanisms to put a lien on your investments.

For example, if you want to borrow Rs 50,000, you can put a lien on Rs 1 lakh worth of investments. The capital you borrow is low-risk because, at any time, if you can't repay, your investments can be sold to recover the loan. There's a margin of 50 per cent. This is the cheapest loan possible because of the high-quality collateral. Earlier, you would go to a bank, request a loan, and wait for approval. Now, you can do all of this on your phone, fetch your investment details, and receive the money in your bank account in 15 to 30 minutes. That's quite magical!

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What are the ways to mitigate risks associated with data privacy?

That's a real threat! It's something that can completely derail all the progress we've made. It can scare people, and it's already happening. For example, a big industrialist in Ludhiana was recently robbed of Rs 7 crore.

That's not just a matter of education; it's about understanding the reality. Every advancement comes with risks. It is true for nuclear power and digital finance too. These conveniences come with dangers. That's why awareness and government initiatives are crucial. At Value Research, we receive a lot of emails from people who have been victims of digital fraud. Data theft from central sources must be taken more seriously.

Stealing phone numbers and bombarding people with spam based on their purchase history is a growing issue. Someone knows exactly what I need. So, it is clear that someone is stealing data from companies. So, central sources should be penalised for mishandling data.
In a country like India, where many people don't fully understand the implications of data theft, it's even more critical. People need to be continuously educated on these risks. And you need to be reminded every time that sharing your OTP is like signing a check. If you're not aware of that, someone can steal your money easily.

Another risk is that people tout digitisation as the solution to all problems. Some people are swayed by claims that a certain model can double their money in four months. It's the same with crypto - people jump in without understanding the inherent value. They think because it's digital, it must be magical. No one questions it with enough suspicion.

Suggested read: The endless crypto hype

Fear of missing out (FOMO) is another issue. When people hear that their colleague, neighbour, or friend is investing in something, they think they must do the same. But everyone's financial context is different, and others may not share the full picture - they may only talk about their profits, not their losses. Basing decisions on FOMO is dangerous. It's an emotion, not a strategy. If you're not careful, you could lose your shirt while someone else is smiling.

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What steps can investors take to avoid falling into speculative traps while investing?

The first step is to be suspicious of anyone pretending to be your well-wisher. It could be an aggressive salesperson as well. Stop interacting with them when it comes to sharing private information.

Fraudsters today often pretend to be family members. Impersonation is a growing reality, especially with AI. You should assume anything suspicious is fraudulent until proven otherwise. If someone claims to be a police officer or from an official department, take your time to verify - fraudsters tend to disappear when faced with scepticism.

You need to protect yourself because all the benefits of digital finance will be nullified if you're not careful. Think that everyone is out to take your money, and make sure you don't reveal personal information - name, identity, bank details, OTPs.

Also, be wary of downloading anything from unknown links. Many times, phones and devices are compromised because we've unknowingly installed malware. That's a hard lesson to learn because most people are too naive to realise their devices have been compromised.

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Viewer's question

Ranjan asks, "I am 59 years old with a reasonable level of risk appetite. I plan to invest Rs 1.5 crore accrued from property sale into equity. I'll need this money after around 12 years.

1. Which type of fund should I invest in?

2. In how many months should I spread the investment?

3. What is the opinion on choosing some index funds that track the Nifty Midcap 150 index?"

If Rs 1.5 crore makes up 50-60 per cent of your total financial net worth, you should spread it out over three years. This is because catching a market high with such a large sum of money is an emotional risk. Even a 10-15 per cent decline right after investing can be emotionally taxing. But if this Rs 1.5 crore is only 10-20 per cent of your total net worth (say you have Rs 10-12 crore in total), then you can spread it over a year.

Given the 12-year investment horizon, you should definitely invest in equity, including mid-cap and small-cap funds, to optimise returns. India will be a great story for mid- and small-cap growth. The Nifty Midcap 150 Index is a promising opportunity.

I also believe actively managed mid- and small-cap funds can add significant value through selectivity. So, for a long-term investment of this size, maybe 20-50 per cent can be allocated to mid-cap, small-cap, and micro-cap funds, while a reasonable portion should also go into large-cap funds: active or passive depends entirely on your ability to choose a good fund. But passive is a good option as well.

Also read: Overload alert

This article was originally published on October 11, 2024.