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Investors buy and sell stocks based on their convictions and the stocks may be from different sectors, having different market caps like large cap, midcap, or small cap. There is a new way to invest in stocks called smallcase which reflect a weighted basket of stocks, idea, or theme. Smallcases are offered by Smallcase Technologies located in Bangalore where the brokers and investment advisors carry out research to create portfolios for investors. This way the investors take a portfolio-based approach while investing in stocks. When someone says they have purchased a smallcase it means that they have bought a basket of stocks representing a certain theme or idea.
An individual investor has to decide which theme would work in the future and when to buy or sell. Smallcases provide investors with an opportunity to invest in trending market themes like green energy, smart cities, electric mobility, digital transformation, defense, etc. The smallcases are liquid and inexpensive and most people would have heard of the themes. The stocks in a smallcase theme are well researched and closely represent a particular theme.
The smallcase team has a SEBI registered research analyst license. Each smallcase is built with stringent filters so that they work out the best in a portfolio. Persons who are busy with their jobs and don’t have ample time for research can invest in smallcase and they don’t need to monitor the portfolio daily. They can invest for long-term and life goals like vacation and retirement.
A person should have a Demat account in order to invest in a smallcase. The money is debited from the investors’ account and stocks are credited to their Demat account. Smallcase has partnered with many entities like Zerodha, Groww, HDFC securities, Edelweiss, Motilal Oswal AMC, Axis AMC, DSP investment managers, Mesha, MintGenie, and GoalTeller. The smallcase can be held and sold according to an individual’s requirement and there is no lock-in period. An investor has to pay a research fee to the smallcase manager and the smallcase makes money by taking a cut from the smallcase manager.
Comparison of smallcase with mutual funds-
A mutual fund is a pool of money collected from the investors by the AMC to invest in stocks, bonds, or other assets by the professional fund managers hired by the fund houses. A smallcase is a product that has caught the attention of millennials and is being used to invest in stocks created by qualified registered investment advisors. While the mutual fund industry is very old the smallcase product is relatively new, around for just 6 years and the overall investment in smallcases is quite small as compared to the mutual fund industry. The differences in investing in a mutual fund Vs smallcase are-
1. Smallcases are directly credited to a customer’s account so they can exercise greater control over their investment as compared to the mutual fund units. There is no customization in the mutual fund units and the fund managers take all the investment decisions.
2. Smallcase invests in a particular theme like green energy or defense with a number of stocks dedicated central to the theme. Mutual funds invest across sectors. In this way, the mutual fund offers greater diversity to the investors while the tide can go against a particular smallcase theme. Therefore mutual funds may turn out to be a better hedge against volatility as they may invest across industries and cycles.
3. There is no lock-in period in smallcases. The investors can exit from their investment at any time of their choice while in some mutual fund schemes there is an exit load which is to discourage investors to exit in the short term. In the ELSS schemes of mutual funds, there is a lock-in period of 3 years where the investors can’t exit their investments. There is no exit load in the smallcases.
4. In mutual funds there are charges known as the expense ratio which could be up to 1.5 to 2 percent of the amount invested. The expenses in the smallcase are significantly lower than the mutual funds.
5. The smallcase investors have ownership rights in the stocks which are there in their portfolio. In the case of mutual funds the investors do not have stakes in the companies but hold the units of the mutual funds.
6. There is higher volatility in smallcases as they invest in a specific idea or strategy. Mutual funds spread their investments across companies and sectors so there is less volatility during the market’s ups and downs.
7. Investment in small cases requires a small amount of research to find the best smallcase to invest but a person may invest in a mutual fund without any knowledge of the stock market as the fund manager will carry out all the research.
A smallcase could be an excellent avenue to grow wealth for an investor who will have to keep track of the market and learn when to exit from their investment.
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