How do SIP’s work in a Smallcase?
Risk appetite and risk tolerance are one of the most important criteria in selecting investments. Let’s look at how to match them in Smallcases.
How do SIPs work in a Smallcase?
Well, the answer would depend on who you ask. If you ask an expert stock investor who understands the technicalities of the stock market, can do extensive research, and then pick the right stocks, the answer would be the former. However, ask other investors who don’t have such hands-on knowledge of the stock market and the latter would be the most preferred choice.
Most investors fall in the second category, and so, for them, Smallcases prove to be ideal investment avenues. A Smallcase is a readymade portfolio of stocks and ETFs that follows a specific theme or investment idea. Most are handcrafted carefully by astute fund managers and Sebi-registered investment advisors. For example, the Deeva Ventures Flagship is a Smallcase that consists of 15-20 handpicked stocks from the Nifty 500 index. Similarly, Deeva Ventures’s Multiplier Smallcase consists of small and mid-cap stocks that have the potential to deliver exponential returns.
Smallcases, thus, help you invest in a well-researched portfolio of stocks to earn better risk-adjusted returns. They are also constantly monitored by experienced analysts so that the portfolio can be recalibrated with changing market dynamics. This ensures that your investment stays relevant in all market conditions.
Investing in Smallcase
When it comes to investing in a Smallcase, there may be a minimum investment amount that depends on the Smallcase that you pick. This further changes with the market as the cost of one share of each stock or ETF that comprise the Smallcase changes. For instance, Deeva Ventures’s Multiplier Smallcase required a minimum investment of Rs.46,987, while the Flagship Smallcase required Rs.24,676 when we compiled this article. Check out their prices now.
There is no maximum limit to investment or the number of smallcases you may hold. You can invest in a Smallcase in a lump sum or in regular installments through SIPs (Systematic Investment Plans).
However, entry into SIP-based investments in Smallcases is slightly differently structured from SIP investment in mutual funds. Both, nonetheless, allow you to invest affordably and create a disciplined investing habit that may serve you well in the long term.
How SIP investing works in Smallcase?
Before we get into how SIPs function in Smallcases, note that Smallcases are a basket of stocks and ETFs with dynamic price movements. And unlike mutual funds that permit one to buy partial shares, investors need to purchase full units of the stocks. That is, if a Smallcase portfolio has stocks of 10 companies with 10 units of shares each (equal-weighted), the investor will need to purchase all the 10 stocks at the price of the day, even though he need not purchase them in the same weightage (no compulsion to buy 100 shares). The minimum investment amount is thus dynamic in nature and updated in real-time, in line with the daily price movement of the underlying assets.
So, the first investment in a Smallcase needs to compulsorily be a lump sum investment that adheres to the minimum investment requirement for most Smallcases. You may thereafter activate a SIP in it for no additional charges. This means that a SIP in Smallcase is possible only in Smallcases that you have purchased and subscribed to.
The first investment amount, called the Minimum First Investment Amount, is the least amount required to invest in all the stocks of the selected smallcase as per the weights.
Once added to your portfolio, you can then proceed to establish a SIP in it. Note here that your SIP amount will be different from your Minimum First Investment Amount.
According to Smallcase, you can start a SIP for an amount less than the minimum investment amount for the smallcase, if the minimum investment amount is more than Rs 10,000.
Of course, the SIP amount is less than or equal to the minimum investment amount in Smallcases where the minimum investment amount is less than Rs 10,000.
The SIP frequency, on the other hand, depends on the Smallcase that you choose. Almost all Smallcases allow monthly SIPs, while some schemes, like Deeva Ventures’s Smallcases also allow weekly, quarterly and annual SIPs for easy investments.
Another point of difference with mutual fund SIPs is that when you set up a SIP in Smallcases, you essentially set up only an investment reminder. Your investment is not really automated. You simply get a reminder to invest in the SIP instalment. That said, Smallcase facilitates a 2-click process to invest in further SIPs.
Why are SIPs beneficial?
SIPs are a beneficial way of investing in Smallcases. Here are the reasons why –
• They are affordable
The primary reason that makes SIPs favourable is their affordability. With SIPs you can invest in the desired Smallcase without feeling a pocket pinch or disturbing your budget. It allows you to invest in small and affordable amounts, regularly, and still create a sizable portfolio of stocks.
• You don’t have to wait for the right time to invest
Investing in the stock market is all about picking the right time to enter so that you can buy low and sell high. Picking the right time is, in effect, a challenging task. You need to monitor the markets closely and speculate on the time when the prices fall so that you can enter.
• Do you have the time and know-how for the same?
With SIPs, you don’t have to time the market. You can invest at predefined intervals without hassling over the right time.
• If you invest with a long-term horizon, compounding grows your corpus
Long-term horizons can do wonders for your investment. You can cash in on the benefit of compounding, which helps multiply the returns that you can earn. With SIPs, as you invest affordably if you give your investment time, you can accumulate a considerable corpus for your financial goals through the power of compounding.
• Get the benefit of rupee-cost averaging
SIPs give you the benefit of rupee cost averaging. In rupee cost averaging, the effective value of periodic investments is neutralised, positively impacting your overall cost of investment. When you invest in SIPs, you invest at different times and at different rates. The aggregate rate, then, gets averaged out. In falling markets, you end up buying more, and in rallying markets, you tend to buy less. These two purchases balance each other out, and the investment becomes more cost-efficient.
• Invest in a disciplined manner
SIPs inculcate a disciplined investment approach. Imagine getting reminded at periodic intervals to invest!
With SIPs, you can regularly invest, without fail, so that your modest investments accumulate to a sizable corpus that helps you fulfill your financial goals.
SIPs, thus, are quite beneficial and help you invest in the desired Smallcase without worrying about its affordability. You can also continue to opt for multiple SIPs in multiple Smallcase portfolios so that you can diversify your investments.
Some things to keep in mind about SIPs
• While SIPs allow ease of investing in Smallcases, here are a few points that you should keep in mind-
• Starting a SIP in a preferred Smallcase portfolio is quite easy. You can invest online and click on the option of SIP when investing.
• You only get an investment reminder on the SIP due date, and you have to invest manually. Some brokers, however, are automating the SIP investment wherein the amount gets debited from the registered bank account and is invested in the portfolio.
• The minimum SIP amount depends on the Smallcase that you choose. It is not uniform.
• You can stop the SIP at your discretion. There is no lock-in period
The bottom line
Understand what SIP investment is all about in the context of Smallcases. Know how it works and how you can start your very own SIP. Choose a profitable and consistently performing Smallcase and start a SIP to get the maximum benefits that SIP investments can provide. You can check out Deeva Ventures’s Smallcases that have a good portfolio and can help you create a corpus worthy of your financial goals.