How Millennials Can Exercise Caution with Fintech Apps While Investing In Mutual Funds

Technology has radically changed every sector, and the financial sector is not an exception. Many asset management companies have benefited from the rapid expansion of digital technology paired with the smartphone boom, encouraging the Millennials to invest online.

While millennials prefer to invest in mutual funds or direct equities over any other asset class, fintech apps and solutions are the preferred methods of doing so. Fintech platforms are reducing many of the barriers that retail investors have experienced when placing orders by leveraging strengths in content and technology while also giving investors the resources they need to make informed decisions.

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Some Fintech apps allow investors even in Tier II or Tier III cities to invest in mutual funds, equities, IPOs, and Bitcoins by just hitting a button. Because millennials account for a large portion of India's working population, they are destined to dominate the market. As a result of the growing fintech sector, financial literacy among Indian youth has improved.

The pandemic has further accelerated digital financial services adoption, including investing and easy access to financial information. With the intervention of internet technologies, apps have made investing accessible to the masses. The dissection of market data through various platforms such as social media has aided investors in developing investment strategies.

While millennials are already investing or seriously contemplating investing, they have different expectations than the prior generations. Millennials are more progressive, ambitious, and cautious than previous generations, and they want to be in charge of their finances. Today's technology makes it simple to find reviews, ratings, and product information.

Millennials, though, should take caution while utilising fintech apps to invest in mutual funds. While an easy-to-use software with low entry barriers has made investing accessible to Gen Z, there is a risk that some of them would become reckless in their investments if they do not exercise sufficient prudence. This could become a major source of concern in the future.

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Although technology has provided many options, it has also added to the uncertainty. Millennials, for example, are prone to overlooking the risk associated with the numerous fintech apps that provide various investment management services and thereby fall into a trap. Even though new-age fintech technology appears to be promising, experts advise millennials to thoroughly examine their instruments and be aware of investment platforms before investing.

Given that, before investing in any financial instrument, you need to ensure your risk tolerance, investment horizon, and financial goals. Similarly, you need to be cautious about the various risks that online investing through several fintech platforms possess.

Here are a few points that millennials must address before considering investment in mutual funds via fintech apps:

1. Is the Fintech Entity Authorized?

The use of fintech platforms to invest in mutual funds is growing in popularity among investors. On numerous media portals, such apps have also been promoted and advertised. This encourages millennials, the tech-savvy generation, to invest in mutual funds over the internet.

Since most of the fintech platforms are currently owned by start-ups, which have not been around for long, there may be a possibility that some of them are not yet authorized by the SEBI or may close down or are acquired by bigger entities. Here you need to do a background check of the fintech platform you wish to transact and manage your investments through.

As you will be investing your hard-earned money through these online platforms, it is crucial to ensure that these apps follow the regulations set by SEBI. Do not follow the crowd or the hype behind any particular investment portal or app. You must evaluate the entity that owns the fintech platforms, their existence in the market, their past performance, and whether it is officially registered with the SEBI.

2. Is your Financial Data Secure?

As you plan to invest in mutual funds via fintech platforms, you will be providing your sensitive financial data to the app for investment purpose such as banking details, identity and address proofs, and other investment details.

Previously, one had to be physically present for Know Your Customer (KYC) process, which was mandated. Due to the pandemic, the regulators have permitted video-based authentication. The entire process is paperless and takes only a few minutes with Video KYC. Furthermore, many large mutual fund companies now allow their investors to invest via WhatsApp. As millennials are always active on this widely used messaging mobile application, investing in mutual funds is much more easier now.

Although this ease of access towards investing your hard-earned money at your fingertips seems to be beneficial to you, it comes at a cost. While sharing your financial information, it is crucial to be cautious about the data security level of that particular fintech platform. You must ensure that your data is secured and safe from hackers or system errors. You need to thoroughly understand the data security norms of such fintech platforms before you plan to invest online.

3. Are there any Hidden Charges?

Many fintech companies offer online mutual fund investment platforms either for free or for a fee. You need to be aware of such charges, as few apps may clearly mention it upfront on the fintech platforms, but sometimes there are hidden charges involved, which you may not be aware of. Some mutual fund transaction platform accept investment in regular plans which have a higher expense ratio and earn them higher brokerages.

Millennials initially miss noticing these hidden charges or costly regular plans and later realise that the hefty fees have eventually pulled down their returns. Such hidden charges will be cut off from your gains, and if you are unaware of these charges, you may end up losing your gains.

Nevertheless, the majority of these fintech platforms are SEBI-registered, well-regulated, and supervised by the SEBI's security and privacy requirements. It may include costs for their services such as subscription fees, registration fees, or transaction fees. You must assess the fees associated with registration, transactions, and any other platform-provided services. Ensure that the platform is transparent in terms of fees and charges.

4. Are the Robo-advisor recommendations suitable for your portfolio?

Fintech platforms provide investors with a comprehensive set of tools to invest, manage and track their investments. Some also have a feature of providing portfolio recommendations called Robo-advisory which is an automated investment service aimed at ordinary investors looking to create a portfolio of mutual funds. Robo-advisors function by asking you a set of easy questions to identify your objective and risk profile and then recommending you a well-diversified low-cost portfolio of suitable mutual funds to invest in.

Robo-advisory platforms use technology that runs complex algorithms to develop auto-customised portfolio allocation and investment recommendations suitable for investors as per their risk profile.

Robo-advisors can assist you in enhancing your investment portfolio, as it is free of human errors, and the turnaround time to provide you with pointed recommendations is far quicker. However, on the contrary, Robo-advisors do not offer many options for flexible investing, and they reduce the human interactions that are sometimes necessary when investment planning.

In addition, Robo-advisors are software running on hardware, and you access them through the internet and your devices. This opens opportunities for hackers and thieves to gain access to your sensitive financial data. Thus, you must ensure that the fintech apps offering Robo-advisory services hold the security of data backed by effective research based on qualitative and quantitative parameters.

To Conclude...

Technology has made it easy to execute investments in a convenient manner. Now millennials don't have to wait to invest in mutual funds, unlike in earlier days of paper investments.

Millennials are able to retain better control in managing their wealth when they get more transparency towards their investments and market-related information. With massive awareness campaigns, it is evident that millennials are betting big on mutual funds, as it helps them in building wealth. With the help of technology, they easily get to know about details and returns that mutual fund schemes can offer in the long run, which makes investing in mutual funds via fintech apps convenient for millennials.

However, investing via fintech apps will only be successful if you exercise caution while selecting the right fintech platform to ensure it holds all the required elements and is backed by valuable research.

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'PersonalFN Direct' is distinct from other fintech platforms:

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• Customisable investment solutions based on your risk profile and suitability

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• Minimal paperwork and ease of transactions

This platform also offers access to research on top recommended funds and provides you with an opportunity to create your own robust mutual fund portfolio of direct plans. So, what are you waiting for? If you wish to manage your mutual fund investments online, you may enrol to PersonalFN's exclusive direct plan platform - 'PersonalFN Direct'!

Fintech platforms may take care of your investments and assist you in enhancing your investment portfolio to generate superior risk-adjusted returns. However, you must improve your financial knowledge to understand the risks involved in the fintech platforms and make informed investment decisions to achieve your envisioned financial goals.

Happy Investing!

Warm Regards,
Mitali Dhoke
Jr. Research Analyst