What is a Smallcase? What Distinguishes them from Mutual Funds?

The benefits of investing in a diversified portfolio are well known to the average investor. Owning a variety of stocks based on sectors and market caps (small-cap, large-cap and mid-cap) is the recommended approach to investing in securities. This protects an investor by distributing their risk across a range of stocks such that if a stock in one particular sector fails, the loss does not affect the investor’s entire portfolio.


A smallcase is a new and exciting product for retail investors that offers portfolio diversification as an in-built feature.


What are smallcases?


Smallcases are baskets or portfolios of stocks or exchange traded funds (ETFs) that are professionally tailored to reflect an investment plan, theme or idea. Smallcases are offered by Smallcase Technologies, an investment platform based in Bengaluru, India, where entities such as brokers, investment advisors and asset management companies undertake extensive research to create diversified portfolios for investors. According to Vasant Kamath, the CEO and co-founder of Smallcase, “The idea is to get retail investors to take a portfolio-based approach while investing in stocks, versus thinking about individual stocks.”


How do smallcases work?


Opening a brokerage account is mandatory in order to invest in smallcases (Smallcase Technologies has partnered with seasoned broking entities like Edelweiss, Zerodha, and HDFC Securities). Since smallcase investment entails owning the stocks of various companies, it also requires a trading and a Demat account. Once the transaction is complete, money is debited from the investor’s trading account, and in its place, stocks are credited to their Demat account. There is no specified lock-in period for these stocks, and they can be held or sold as needed.


Smallcase vs Mutual Fund


Smallcase portfolios often get compared with mutual funds. While the two are similar in that they both minimize risk through diversification, there are multiple benefits to going the smallcase route.


1. No Lock-in period



As mentioned earlier in the article, there are no lock-in periods for smallcases. Whereas some mutual funds preclude investors from exiting their investments for a certain period of time, this is not the case with smallcases. Investors can exit at a time of their choosing.


2. Cost of investment


Mutual funds investment are known to charge up to 1.5-2 per cent annual fees on the amount invested as expense ratio. Smallcases only charge a nominal amount (0.2%) at the time of performing the transaction. Thus, smallcase investments carry no hidden costs and work out to be a significantly cheaper option than mutual funds.


3. Transparency and control


Mutual funds disclose the stocks in the portfolio at a fixed time. On the other hand, smallcase investors can see and control their investments immediately after investing. They do not have to rely on a fund manager to make investment decisions for them, as is the case with mutual funds.


4. Ownership of shares, not units


Smallcase investments ensure that investors have ownership rights in the stocks comprising their portfolio. In the case of mutual funds, investors do not own a stake in any of the companies; they simply hold units of the portfolio.




One can now easily invest in smallcase investments or in mutual funds at the click of a button. The process is simple and help is available at every step.


Source: Motilaloswal

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Garvit Chaharia is the Founder of Deeva Ventures & has helped more than 10,000 investors manage their biggest stress - Money; by providing disciplined advisory on Portfolio Management, Risk Management & Debt Management.