The importance of index funds in your portfolio

Pratik Oswal, Head of Passive Funds at Motilal Oswal AMC, says goal-based investing is the best form of investing. Glide Invest, the robo-advisory company he founded, offers 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 management advisory platform in the US, where we were doing pretty well. We raised a lot of venture capital, all that stuff. And when I came back, I saw the power of helping investors automatically invest in capital markets savings. I think direct planes were introduced around this time. But I saw that there were not many products available in the market. This is what prompted me to launch these passive funds. And that’s how I’m here leading the passive fund business at Motilal Oswal AMC.

We started working on it at the end of 2019. The product is very similar to a robo-advisor in the US. But unlike the US where there is a wealth management market across different spectrums, wealth management in India is quite 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 that’s going to be most of India’s population. So that’s the kind of opportunity we’re targeting.

Do you offer index funds in your portfolios?

Yes exactly. Index funds are the core of your portfolio, and that’s because they’re very long-term. Investors really don’t need to sell index funds because they don’t underperform the market. Obviously you have a tracking error, but over time it’s basically betting on market returns. So there is no bad performance of index funds. They are inexpensive and relatively simple for a retail investor to understand. That’s why we offer these index fund portfolios.

Index funds have built a track record in India on the equity side and on the debt side, what do you think?

On the debt side, to be honest, there aren’t many index funds. So I think you’ll see over the next two or three years a lot more innovation happening on the debt side. The innovation so far has been on the type of held-to-maturity (target maturity) debt fund that expires. And the problem with expiration of debt funds is that as a long-term investor investing for, say, 10 to 15 years, you will end up having a tax event when the fund matures. Then you reinvest that in debt funds. So we use those funds as debt allocation. But compared to about four years ago, there are many more options today.

So how do people invest through Glide?

Glide invest is primarily a business-to-consumer (B2C) application. Unlike most startups, we don’t spend on marketing. So much of the growth you’ve seen is entirely organic. The idea is that potential investors come to the app and answer a few questions there. These questions allow us to understand the type of investor you are and, based on this, we will offer you recommendations. The second thing is when a client comes in with a certain goal in mind. I firmly believe that goal-based investing is the best form of investing. Even retirement is actually a goal, technically. And, we also consider a client’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. It is therefore personalized and inexpensive.

What type of AUM (assets under management) or client base do you have?

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

Not accepting customers from Motilal Oswal group entities?

If you are already a client of Motilal Oswal brokerage or any other company, you are technically not allowed to also be a client or client of Glide Invest, according to Sebi regulations separating distribution and advice. So we’re not able to onboard customers that are already part of the ecosystem, which was a bit difficult as those are obviously easier to convert. AMC investors (asset management company) can of course be clients of Glide invest.

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

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

What are your fees?

Currently, it’s free. But we hope to start subscription plans in the next 8-10 months.

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