Why I avoided ET Money Genius for investment?

"ET Money Genius is a personalized intelligent investment service that creates and recommends an investing plan that is most suitable for investors. It allocates money in different asset classes that help you achieve high risk-adjusted returns. It keeps track of the market dynamics and rebalances your portfolio accordingly. As a result, it continuously manages your portfolio risk. It delivers market-beating returns consistently. And it also protects your portfolio downside. Therefore, ET Money Genius removes the need for investors to evaluate, review, allocate and rebalance their portfolios. And it does all this heavy lifting on behalf of an investor in an automated and disciplined manner."

Source: Everything You Should Know About ET Money Genius

However, I believe ET Money Genius would be pricy for 90% of retail investors although it invests through low-cost ETFs. It uses index ETFs for passive investing but takes active monthly buy/ sell calls. Go figure!!

Under the hood, the Mutual Fund option of ET Money Genius is nothing but a dynamic asset allocator fund that are around for years but invests in low-cost ETFs/ Index Funds behind the scene and rebalance them monthly based on ET Money’s market outlook.

However, with a flat rate of ₹250/month, it is more expensive than most available mutual funds (forget asset allocator funds) at least for most retail SIP investors. To get a 1% expense ratio, one has to invest at least ₹25,000/month. And, expense ratios of reputed AMCs who have a history of actually delivering returns are as follows:

• HDFC Asset Allocator Expense Ratio:0.05%
• ICICI Asset Allocator Expense Ratio: 0.07%
• Kotak Asset Allocator Expense Ratio: 0.20%

ET Money Genus merely claims return % based on backtesting on known historical data when it could be a result of overfitting. It needs stress testing when in practice in real-time market situations.

Coming back to the price point, for someone who is doing a minimum SIP of ₹5,000/month in Genius, let’s see the expense ratio of ET Money Genius:

Cost: ₹250*12 = ₹3000/-; Investment: ₹5000*12 = ₹60,000/-

Exp Ratio: Cost / (Actual + Possible Investment) => 3000/ 60000+3000 => 0.0476 => 4.76% + * 😵

*Not to mention, the underlying instruments ETFs/ Index Funds have expense ratios of their own and moreover there are transaction costs for frequent rebalancing i.e. monthly.

For someone who is doing a SIP of ₹15,000/month, let’s see the expense ratio of ET Money Genius. ₹3000/₹183000 = 1.63%. + ETF Exp Ratios + Transaction Charges

For someone who is doing SIP of ₹25,000/month, the tentative expense ratio of ET Money Genius is ₹3000/₹303000 = 0.99%. + ETF Exp Ratios + Transaction Charges

How you could bring down the expense ratio to 0.05% or less?

To bring down the De-facto Expense Ratio to the level of 0.05% similar to that of Asset Allocator Funds, how much to invest per year?

₹3000/ x = 0.0005 => x= ₹60,00,000 i.e. ₹60 L. Then SIP has to be ₹60L/ 12 = ₹5L per month. 😵

To be fair, if you have a portfolio of ₹60 L and you are willing to reinvest the complete amount through ET Money Genius by incurring LTCG/ STCG taxes, then in theory, you could get an expense ratio of 0.05% or less.

How many investors have 60L laying around to invest in ET Money Genius from Day 1? So, ET Money Genius is pricy for 90% of retail investors but it invests through low-cost ETFs for passive investing by taking active monthly buy/ sell calls. It is full of contradictions.

To be noted, ET money does risk profiling, personalizes asset allocation, and helps in periodic rebalancing. Undeniably, they are important for new investors but 4.76% expense ratio is unjustifiable when SEBI capped the expense ratio to 2.5% for any mutual fund.

I am a fan of Shankar Nath/ ET Money’s insightful video series on mutual funds, stock investments, NPS, etc. for spreading investor awareness but I am not paying that premium every month to buy their latest obsession rather I would invest that extra ₹250/- per month in a low-cost index fund.