All you want to know about smallcase investing!

Stock market investors scout companies which have strong fundamentals and good financial strength. Some investors want to invest in zero-debt companies, some in companies that have big export earnings etc. However, there are more than 6,000 companies listed on NSE and BSE. Singling out such companies out would be a time consuming task.

Is there a way where an investor could invest in a bunch of all such companies, all at once?

Yes, the answer lies in a smallcase. Think of it as a basket of exchange traded funds (ETFs) and stocks.
A smallcase has a minimum of 2 and maximum of 50 securities. These securities can have varying objectives. Like all-weather investing, smallcase includes three asset classes like equity, debt and gold. This gives investors the benefit of diversification, since one investment can help them avail the advantage of 3 asset classes. Electric mobility smallcase invests in those companies which manufacture electric vehicles. And dividend aristocrats smallcase invests in shares of those companies which pay regular dividend.

SEBI-registered investment advisor and advisory firms create these smallcases based on their research, and then publish it on smallcase platform. After this, the investors can access these portfolios either for free, or by paying a fee. These small cases are periodically reviewed and adjusted according to the ongoing market conditions.

Now, the question is, who should invest in smallcases?

Smallcase platform founder Vasant Kamath says that smallcases are ideal for those nuanced and experienced individuals who are already invested in the market via mutual funds, and now wish to also transition into direct equity investing, in order to diversify their portfolio.
Additionally, anyone looking to directly invest in equities and ETFs can start by investing in a smallcase. Remember that while you can redeem your small cases whenever you want, they are best suited for long-term investments.

Manager of two smallcases namely Prime and Balanced Multi Factor, Wright Research’s founder Sonam Srivastava says that smallcases come with a host of benefits. Some of these include innovative themes, professional expertise and research readily available to investors. With smallcase, investors have the chance to invest in nascent, emerging sectors like electric mobility, AI, sustainable energy and more.
Additionally, there are specific small cases which invest only in companies of select groups like Tata and Mahindra.

Now, let’s understand what are the charges payable.

If invested in lumpsum, you will be charged Rs 100, or a maximum of 1.5% of the investment amount. When investing in your existing small cases through SIPs, Rs 10 will be charged, alongside applicable taxes such as GST, STT and more. However, the minimum investment amount needed in most small cases is very high, and might not correspond with the returns generated.

In some cases, benchmark indices have given better returns than smallcases. For instance, the minimum amount needed to invest in the dividend aristocrats is Rs  82,214. Similarly, the PE list smallcase needs a minimum of Rs 80,186 to start investing. Also, since advertising directives by market regulator SEBI restrict Registered Investment Advisors or Research Analysts from showing their past performance, you cannot ascertain which manager to trust. Additionally, the universe of managers managing these small cases is limited, and investing in them is not a straightforward process. Moreover, simply mirroring a portfolio might not be sufficient to meet your specific financial needs.

SEBI Registered Investment Advisor Kanika Shah advises that mutual funds are better investment avenues, since these cater to all kinds of investors. Also, investors have a long history of past performance to compare and choose funds based on risk profile handy for decision making. Performance reporting is standardised, so it’s easy to compare. However, every investment comes with its own set of profit and losses, and this is applicable on smallcases as well.

(Disclaimer: Stocks recommendations by experts or brokerages are their own and not those of the website or its management. Money9.com advises readers to check with certified experts before taking any investment decisions.) ac