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In November 2019, Sebi hiked the minimum investment amount for portfolio management services (PMS) from 25 lakh to 50 lakh. The decision proved to be a windfall for Smallcase, a Bengaluru-based fintech firm providing pre-packaged portfolios to stock investors for whom the threshold does not apply.

A second windfall came when the pandemic hit and hordes of Indians took to the stock market. In FY21, 14.2 million demat accounts were opened compared to an average of 4.3 million in the preceding three financial years.

It was just the moment for Smallcase. “Our users multiplied three times from 9 lakh in March 2020 to 28 lakh in March 2021," said founder and CEO Vasanth Kamath.

In FY21, the firm saw 8,000 crore invested through its platform, he said.

Smallcase is focusing on signing up Sebi-registered investment advisers (RIAs) and research analysts (RAs) to offer their services on its platform. It has signed up 100+ advisers, including Deepak Shenoy of Capitalmind and Vikas Gupta of Omniscience Capital.

“Smallcases created by RAs and RIAs can be offered by brokerages and distribution platforms to clients. We have given them a route to be part of the ecosystem," said Kamath.

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This ecosystem expansion is important for the firm. Smallcase itself has an RA licence through its wholly owned subsidiary firm called Windmill Capital and the overwhelming majority of its users subscribe to Windmill portfolios.

These smallcases are currently free, although the firm is planning to launch fee-based smallcases soon. Advisers can either charge a flat fee or a percentage charge (up to 2.5% allowed by Sebi). Smallcase managers can work with a host of digital/offline channels to market their products.

Smallcase users should, however, consider the disadvantages. Small ticket sizes make it difficult for RIAs and RAs to offer smallcase subscribers the personalized service that regular clients would get. Unlike a mutual fund where rebalancing inside the fund is tax-free, rebalancing a smallcase can attract taxes.

The past returns of portfolios are shown on the platform without adjusting for charges (RIA or RA fees). This is unlike an MF net asset value, which is the net of all expenses.

The portfolios can be quite concentrated. Sebi rules on diversification—mandatory for MFs—do not apply here.

The average Smallcase portfolio has 12 stocks, though the platform also supports asset allocation strategies with ETFs, which are more diversified and popular, Kamath said.

For investors who were served by brokers through clunky legacy websites and tele-calling, this sleek integrated system of Smallcase can offer a better experience.

ABOUT THE AUTHOR

Neil Borate

Neil heads the personal finance team at Mint. A former colleague called them 'money nerds' and that's what they are. They cover topics like mutual funds, taxation and retirement, all to improve your chances of building wealth. Neil graduated with a degree in law and economics. He passed the CFA Level I exam and began his writing career at Value Research, a mutual fund research firm in 2016. He joined the personal finance team Mint in 2019. Everyday, the Mint Money Team tackles personal finance questions such as where to invest and where to borrow, through articles, charts and reader queries. They also have a daily podcast - 'Why Not Mint Money' and an annual ranking of mutual funds - the Mint 20.
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