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The Importance Of Index Funds In Your Portfolio


Pratik Oswal, head, passive funds at Motilal Oswal AMC, says goal-based investing is the best form of investing. Glide Invest, the robo advisory firm that he has set up, suggests portfolios for passive funds and is aimed at retail investors. Edited excerpts from an interview.

 

When did you start Glide Invest?

 I was actually working for an automated wealth advisory platform in the US where we were doing pretty well. We raised a lot of venture capital, all of that. And when I came back, I saw the power of helping investors automatically invest in savings into capital markets. I think direct plans were just introduced at around that time. But I saw that there were not that many products available in the market. That’s what prompted me to launch these passive funds. And that’s how  I’m here and heading the passive funds business at Motilal Oswal AMC. 

We started working on this at the end of 2019. The product is very similar to a robo advisor in the US. But unlike the US where there’s a market for wealth management across different spectrums, wealth management in India is fairly concentrated at the top, say, 1% or 2% of the population. You have to be able to invest 30-40 lakhs to be able to get the services of someone who comes to your house or comes to your office and gives you personalized advice. And what about the investor who wants to invest say 10,000 or 20,000? There is no help. And this is going to be most of India’s population. So that was the sort of opportunity that we are targeting. 

You offer index funds in your portfolios?

Yes, exactly. Index funds are used as the core of your portfolio, and this is because they’re very long term. There’s really not any need for investors to sell index funds, because they don’t underperform the market. Obviously, you have some tracking error, but over time, it’s basically betting on market returns. So there’s no bad performance of index funds. They’re low cost, and they’re relatively simple for a retail investor to understand. So that’s why we’re offering these index fund portfolios. 

Index funds have built a track record in India on the equity side and debt side, what is your thinking? 

On the debt side, to be honest, there are not many index funds. So I think you will see over the next two or three years a lot more innovation happening on the debt side. So far, the innovation has happened on the held to maturity (target maturity) sort of debt funds which expire. And the problem with expiring debt funds is that, as a long-term investor investing for, say, 10-15 years, you will end up having a tax event when the fund matures. Then you invest that back into debt funds. So we use those funds as the debt allocation. But compared to say about four years ago, there are a lot more options today. 

So how do people invest through Glide? 

Glide invest is primarily a business-to-consumer (B2C) app. Unlike most startups, we don’t spend on marketing. So a lot of the growth that you’ve seen is completely organic. The idea is that potential investors come to the app and answer a few questions there. Those questions allow us to understand the type of investor you are and, depending on that, we will offer recommendations. The second thing is when a customer comes in with a certain goal in mind. I strongly believe that goal-based investing is the best form of investing. Even retirement is actually a goal, technically. And, we also account for a customer’s risk profile. We recommend a conservative portfolio for someone who is not able to take as much risk and an aggressive portfolio where someone is able to take a lot more risk. So it’s personalized and low cost. 

What kind of AUM (assets under management ) or customer base do you have? 

We have about 40,000 customers right now. We built that over the last year and a half. Most of these customers are already invested in direct plans in mutual funds. So that is the segment that we are looking for. We also offer a platform on the app that helps you invest in direct funds. 

You don’t accept customers of Motilal Oswal group entities? 

If you’re already a customer of Motilal Oswal broking or any other business, then technically you’re not allowed to also be a customer or client of Glide Invest, as per Sebi regulations separating distribution and advice. So we are not able to onboard any customers who are already within the ecosystem, which has been a bit of a challenge because those are obviously easier to convert. AMC (asset management company) investors can, of course, be clients of Glide invest. 

How do you maintain a sort of a Chinese wall between the AMC and Glide Invest? 

The teams are completely separate. There will be some Motilal Oswal funds in our portfolio but we offer other AMC funds as well.  Our backend engine also offers some tax optimization. Your incremental investments will change, depending on where money should go. So suppose tomorrow, you have a 50:50 portfolio between equity and debt and it becomes 60:40, automatically your fresh investments will get deployed in debt rather than equity. Most of our investors are SIP investors and hence this kind of tax-efficient rebalancing works well for them. 

What are your charges? 

Currently, it’s free. But we are hoping to start subscription plans over the next 8-10 months.

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