AI in wealth management: How LotusDew is transforming investment advisory

Artificial intelligence (AI) is penetrating every sphere of existence, including stock trading where it is taking on the role of registered investment advisors (RIAs), analysing market trends, and predicting price movements.

For invest tech startup LotusDew Wealth and Investment Advisors, the growing interest in the stock market couldn’t have come at a better time. In August this year, the number of unique registered investors on the National Stock Exchange (NSE) crossed the 10 crore mark. Between January 2023 and September 2024, demat accounts grew by 54% to 17.1 crore.

Hyderabad-based LotusDew takes a tech-driven approach to wealth management by modernising the role of RIAs, which offer tailored financial guidance and stock analysis. However, traditional RIAs often rely on manual processes for fundamental analysis and market trend assessment, which can be time-consuming, labour-intensive, and prone to human biases.

LotusDew, on the other hand, automates deep data analysis to create curated stock baskets. The startup says its tech-focused model has resulted in 54% annualised returns over five years, attracting over 25,000 lifetime customers, and a 200X increase in assets under management in three years.

The company was part of YourStory’s 2024 Tech30 cohort of India’s most promising startups.

Disrupting wealth management

Abhishek Banerjee and Prachi Deuskar founded LotusDew in 2019, driving the company’s approach to wealth management with combined expertise in finance and technology.

Abhishek brings over 15 years of experience in fund management and multi-asset quantitative strategies, with key roles at Franklin Templeton, MN, and Goldman Sachs. Prachi Deuskar complements this with a decade of academic experience, having served as an assistant professor at the Indian School of Business and the University of Illinois Urbana-Champaign. A chartered accountant, she is an MBA graduate from IIM Bangalore and holds a PhD in Finance from NYU Stern School of Business.

The duo launched the first product in August 2019, six months after LotusDew’s inception.

“We started with small-cap stocks, then moved to micro-caps, and now we’re applying our model to SME (small and medium enterprise) stocks as well. These segments have absolutely no products and we aim to be the first to launch solutions for them,” says CEO Abhishek Banerjee.

However, being a newcomer came with its own challenges and didn’t have a distributor as trust plays a big factor in wealth management. “Distributors [like smallcase] would say, ‘Come back when you cross Rs 500 crore [in AUM],’ but how do you cross that without distribution?” 

Even though LotusDew’s products are generally sold online, some investors would call the founders to their offices and ask for formal presentations.

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The initial breakthrough came from personal connections and grassroots efforts. “Our first shot came from local customers in Hyderabad. A landlord whose house I was going to rent became a key investor after visiting our office at the Indian School of Business campus.”

LotusDew's 22-member team creates portfolios using proprietary datasets and AI-driven strategies, focusing on board governance, global investor behaviour, and institutional disclosures. Its Listed Venture Capital basket analyses data points such as board composition, tax litigation histories, and even the educational backgrounds of directors to assess a company’s governance and potential growth.

"This product provides investors with venture capital-like payoffs in their portfolio but with the liquidity advantage of traditional investments," he claims.

Using a combination of NLP (natural language processing) and fuzzy logic, LotusDew evaluates the backgrounds of board members. “We look at factors like which colleges they attended and where they’ve worked. This helps us score the governance quality of small companies,” Banerjee explains.

“These non-traditional indicators are hard to manipulate and offer a clearer view of a company’s trustworthiness,” he adds.

The company also monitors the investment activities of 8,000 global institutional investors. “We analyse public disclosures to understand their conviction levels, especially in the context of changes in their fund sizes,” he notes.

Small cap advisor

Operating in the liquid alternatives space, LotusDew competes with established firms like Deepak Shenoy’s Capitalmind, Wright Research, and Premji Invest-backed Dezerv but distinguishes itself through a technology-driven approach, and by diving headstrong into micro-cap and nano-cap equities.

Micro-cap equities are companies with very small market capitalisations, typically ranging between $50 million and $300 million.

These companies are often younger or in niche industries and are traded on smaller exchanges or over-the-counter markets. Investing in micro-cap equities can offer high growth potential but comes with higher risk due to limited liquidity, limited regulatory oversight, and smaller operating scale.

Nano-cap equities are even smaller, with market capitalisations below $50 million. These stocks are typically highly speculative and have very limited trading activity, making them suitable primarily for experienced investors who understand the risks.

"We focus on non-balance-sheet indicators like the reputation of board members or the precise tracking of institutional investors' activities," explains Banerjee.

LotusDew’s AI-driven strategies enable it to operate in areas that traditional asset managers find cost-prohibitive. “Manually analysing all the data in the SME space would be too expensive and time-consuming,” Banerjee says, adding that the use of AI makes wealth management affordable for retail investors.

Operating model

LotusDew operates on both advisory and brokerage models. In the advisory model, clients receive portfolio recommendations for a fixed fee. On the brokerage side, the company offers managed portfolios with a minimum investment requirement of Rs 50 lakh.

“Currently, we manage disclosed and undisclosed assets amounting to an estimated Rs 1,000 crore,” Banerjee states. However, the structure of the advisory model, wherein the startup charges a fixed fee and doesn’t mandate clients to disclose assets, makes exact figures challenging to determine. The disclosed AUM stands at approximately Rs 350 crore while the undisclosed portion is estimated to add another Rs 650 crore.

The firm holds two SEBI licenses—one for investment advisory and another for brokerage—offering curated equity baskets through subscriptions and managed portfolios in its brokerage business. 

The startup is actively exploring acquiring new licenses and expanding its intellectual property to broaden its portfolio offerings. LotusDew also plans to launch an alternative investment fund.