Artificial Intelligence (AI) is the new electricity that is certainly lighting up many bulbs across industries and professions. The pervasiveness of technology is reflected in the amount of resources spent on it. IBM’s Watson supercomputer and Google’s AlphaGo program are two classic examples of the growing fascination with AI in recent times. We’ve also read about how intelligent or driver-less cars are being tested already.
AI’s imprints can be seen in the finance and accounting world as well. JP Morgan’s COIN program lately completed 36,000 hours of finance-related work in a matter of seconds. And
accounting firms EY and PwC are looking for ways to incorporate AI-enabled drones in their audit work.
The winds of change are blowing in the mutual fund industry as well. But will AI impact the way mutual fund assets are managed? Read on to know more.
Technology has significantly impacted the mutual fund industry in the last decade. Fund managers commonly use attribution and real-time analysis to evaluate the performance portfolios. They can now easily track the quantum of money investors are putting into different schemes. And can also comfortably categorize different types of investors.
In fact, fund houses have routed 30-40 per cent transactions through the digital mode. Customers can invest in schemes through an SMS, a phone number or an app. They can opt to do certain transactions online instead of physically going to the mutual fund offices.
Even robo advisory is increasingly becoming popular in the wealth management industry. It is estimated that by 2020, about 10 per cent of total asset under management worldwide, which will amount to $8 trillion, will be managed by robo advisors.
While machines process large chunks of data continuously and effortlessly, with minimum chances of errors, what they lack is the emotional intelligence and intuition of humans required in certain situations.
Fund managers use cognitive skills to interpret the non-verbal cues of investors and advice accordingly. They are still in demand because of their ability to interpret data. That’s why, Indian investors rely on mutual fund advisors, more than robo advisors.
Moreover, AI is not suited to handle many uncontrolled and unanticipated events. There have been instances where machines haven’t been able to respond timely to market flash crashes. For instance, in 2010, the Dow Jones Industrial Average plunged by almost 1,000 points due to a glitch in the automated trade execution system. Fund managers, on the other hand, can identify trends, analyze data points, and respond appropriately in cases of information overload.
The Balancing Act
We believe, the best way forward is to marry mutual fund houses with powerful technology innovations. While fund managers continue to take the final call, machines can be effectively used as smart assistants.
Human advice is critical for more complex emotional needs, which is something AI is still not equipped with. The latter can be optimally used for standardized and repetitive tasks.
This allows mutual fund analysts and advisors to focus on other pressing issues instead of gettingcaught up in mundane tasks. The key is to harmoniously work with AI and technology and offer customers the best of both worlds.
Disclaimer: Mutual Fund investments are subject to market risks, read all scheme related documents carefully