Can you get wealthy by investing in multiple smallcases?

For years, portfolio management services have eluded the retail investor. Be it the daunting ticket size (50L since SEBI revised it in 2019) or the complexity of the systems at large, investors looking for a credible asset manager had to make do with mutual funds. The truth is, tailor-made asset management services were always reserved for those with an existing high net worth; as a result, stock-market investing has traditionally been a thing of mystique for the average investor. But smallcases as a concept disrupted this market, and how

Smallcases provides retail investors with high-quality capital management services traditionally associated with a typical PMS. You may possibly call smallcases ‘affordable PMS’! With investment portfolios that are tailor-made to multiple investors’ investing goals and bundled risk appetite, smallcases are a viable idea worth exploring for most investors. Additionally, a ticket size as low as Rs 5000 is small enough for most people looking to invest in equities and this consideration truly breaks the entry barrier for a new investor.

To know more about what are smallcases and how they work, click here .

That said, over-diversification is overkill. Every asset class and related asset-allocation format (in this case, smallcase) has its own benefits and limitations, especially if you have too many. In this blog, we’ll take a balanced look at both – the pros and cons of investing in multiple smallcases.

Why Investing In Multiple Smallcases Is A Good Thing:

1. Counter volatility:

One of the main reasons to have multiple Smallcases is they allow an investor to maintain a portfolio that may tide over volatility smoothly. Smallcases essentially are bundled thematic investments. Should one theme be affected by market movements, there is a possibility that your other smallcase investments buoy your overall portfolio, helping you cross over the short-term fluctuations in the market.

2. Fulfilling different goals: 

Diversifying across multiple smallcases may allow us to meet diverse life goals. You can explore investing in smallcases across bundles that commit to delivering capital appreciation or beating inflation and/or stable income and wealth protection. By dividing your corpus into different smallcases, you can undertake and achieve different financial objectives. These risk spectrums allow us to better manage our investments for multiple goals, and monitor them according to the benchmarked goal.

3. Ease of implementation:

A key advantage of smallcase is their ease of implementation. You don’t necessarily need a broker or sell-side entity to make individual trades of the stocks in your smallcase portfolio – you can do it directly through smallcase too. Buying and selling smallcases is exactly like buying stock, done at the click of a button and the shares are directly credited to your demat. Moreover, smallcases like that of TejiMandi are regularly and personally monitored by highly qualified investment advisors who make sure your investments are secure and portfolio is rebalanced on a regular basis.

Now that we’ve seen the bright side, it’s also important to be wary of the pitfalls. We’ve made a list of some cracks in the wall that you should consider before accumulating too many smallcases.

Why Investing In Multiple Smallcases May Not Be A Good Thing:

1. Portfolio Overlap:

Too much of anything is not a good thing. This stands true for diversification of your portfolio through smallcases too. It is very likely that certain well-performing stocks may be repeated across multiple themes and hence a part of multiple smallcases. This could lead to concentration risk should your exposure to particular stocks become high cumulatively across smallcases. Also, with your portfolio filled with Smallcases that have diverse asset allocation patterns, it may result in you not getting the best possible performance out of your money. Your returns get averaged out.

2. Expensive cost of access:

Many investors are confused by the fact that you have to pay a minimum amount to subscribe to quality smallcases. The fee involved with any Smallcase is not much; it’s just about 2% and this may really not be an issue when you consider the advantages it may give you – professional fund management service at a fraction of the cost. However, overspending in this regard might make it more difficult for you to make an absolute profit, excess of costs.

3. Hard to monitor:

If you invest in multiple smallcases, for example, 10 smallcases and above, with every Smallcase comprising of at least 10 companies, you will essentially end up with a portfolio that has over 100 stocks. In this scenario, it will be very difficult to monitor performance and manage risk over time! You might never quite understand what’s doing well, what’s underperforming, given that the stock market is a dynamic beast that changes with every trading session. As an investor, you need to know the exact details about what’s going on with your portfolio, which is why investing only in a few selected Smallcases is better for most investors.

The Bottomline

Smallcases are an interesting investment product- a form of research-led asset allocation program that can give you better returns with managed risks. But it’s important to make the right decisions in the beginning if you want it to work for you in the long run. There are a few advantages and a few disadvantages of investing in multiple smallcases, but they’re still a very good option for investors who don’t have the patience or the time to analyze their portfolios closely. So while investing in multiple smallcases is not really a bad decision, it should be done with caution and a fair bit of understanding of the product to arrive at a number that works for you. We’ll leave you with what Oscar Wilde wrote – Everything in moderation, including moderation!

Teji Mandi offers actively-managed premium portfolios – Flagship and Multiplier – that cater to your goal-based needs. Gain access to “Affordable PMS” – Start with as low as Rs149/month and embark on your investment journey today.