Artificial Intelligence: The Future of MF Investing!

Satya Nadella, CEO of Microsoft, in his recent visit to India said, artificial intelligence (AI) is one of the three path-breaking technologies that will shape the world in coming years. This disruptive technology will transform everything wherever it is applied. Mutual funds and asset management companies (AMCs) will not remain immune to this wave of transformation.

The use of AI is not new to the stock markets, which have been using this technology for a while in form of ‘quants’ or quantitative trading. This was mostly used in executing high frequency trades (HFT). Complex computer algorithms are used to identify opportunities and explore them.

Now the trend is fast catching in mutual fund. There are AMCs around the world that are using AI in one form or another. For example, many hedge funds and AMCs in the US are using AI to fulfill many of their routine requirements. AI is used for combing voluminous data and producing the required report. Something that used to take a lot of time doing manually is being done now in a jiffy. Automating content and document creation are low hanging fruits that are picked first.

Next, we may see AI being used to do the job of an analyst. This ‘artificial’ analyst can analyse a large amount of data with greater intelligence and accuracy in lesser duration. AI can also be used to test and execute different strategies at different times, thereby improving the returns. Ultimately, with the advancement of machine learning and deep learning (part of AI), where a machine learns by itself with various data, it may replace the job of a fund manager. A leading mutual fund in India is already testing a product for its rich clients that will use AI to select stocks for their portfolios. In addition to entry, it will also suggest when to exit. 

Finally, we may see a tectonic shift in the way funds are recommended to an investor. Robo-advisors are already gaining market share when it comes to advising investors. This trend is further likely to intensify with advancement in technology. As a result, SIP as well as the ‘buy and hold’ strategy, currently the investment norm followed by many investors, may become obsolete. The frequency of entering and exiting from a mutual fund scheme may also increase going forward.

As an investor, you should brace yourself for such radical changes and be ready for the future that is going to change the way you invest.

Venture capitalist Marc Andressen had once quipped “Software is eating the world”. Not too far in future, we may see AI eating the world, including investment world!