(Illustration: Rushikesh Gophane)
(Illustration: Rushikesh Gophane)

Is a smallcase investment right for you?

  • This is different from mutual funds, where you don’t have ownership rights in the stocks that form your mutual fund portfolio but you hold units of the portfolio
  • They might sound a lot like portfolio management services, but unlike PMS, they do not have a ticket size of 25 lakh

MUMBAI : Have you heard of smallcases yet? These are portfolios of equities or exchange-traded funds with an underlying theme or strategy. If you are investing in smallcases, you get the direct ownership of the individual stocks bundled together in a portfolio. This is different from mutual funds, where you don’t have ownership rights in the stocks that form your mutual fund portfolio but you hold units of the portfolio. They might sound a lot like portfolio management services (PMS), but unlike PMS, they do not have a ticket size of 25 lakh.

HOW DOES IT WORK?

A brokerage account is mandatory to trade in smallcases. Smallcase Technologies has partnered with brokerages such as Zerodha, HDFC securities, Kotak Securities, Axisdirect, Edelweiss, 5paisa and Alice Blue. Since you will be investing in stocks directly, a trading account and a Demat account is required. When you invest in smallcase, money is debited from your trading account and stocks are credited to your Demat account. There is no lock-in period as you hold the stocks directly and they can be sold any time. “You can make changes to your portfolio anytime during market hours," said Vasant Kamath, co-founder of smallcase Technologies. There are broadly four kinds of smallcase portfolios. “Asset allocation portfolios which are Etf-based portfolios consisting a mix of largecap equities, fixed income, and gold; smart beta portfolio which focus on large cap stocks; model-based that are based on established investment strategies and may have a bias towards mid- and small-cap stocks; and thematic/sectoral which may stocks," said Kamath. All stocks listed on the NSE are included in the potential investable universe.

THE COST

“Standard brokerage charges are applicable depending on the broker you pick. You pay this charge only when there is a transaction and only on the transaction amount, not the entire portfolio. In case of Zerodha, where the standard brokerage is zero, most smallcases have a onetime flat fee of only 100," said Kamath. Standard taxes and charges associated with equity transactions will also be applicable. “However, no additional fees are required for re-investments, SIPS, to rebalance the portfolio and likewise," said Kamath.

SHOULD YOU INVEST?

You need to have a long-term view towards investing if you want to put your money in smallcases. “Most smallcases are designed as longterm investment products and may not perform as expected in the short run. If investors don’t have a longterm horizon, they should consider alternatives," said Kamath.

However, there may not be a minimum ticket prize since the concept of fractional shares does not exist in India.“this can sometimes lead to large minimum investment amounts in instances where stocks like Maruti Suzuki India Ltd or Eicher Motors Ltd [which trade at a high share price of 20,350 and 6,650 respectively, as of May 8] are included in the smallcase," said Kamath. “Smallcases as a concept is good only for well-informed investors. Equity penetration in our country is very low and common man still doesn’t participate in broad conservative products like mutual fund. In this scenario, smallcases as concept is way ahead of its time," said Jayesh Faria, senior executive group vice president, Motilal Oswal Private Wealth Management.

“However, for readymade smallcases, prior market knowledge is not a pre-requisite as the rebalancing is done by Sebi-licensed research analysts," said Kamath. Some amount of handholding may be required any way, but the platform itself does not employ financial advisors.

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