One of the investing methodologies preached and prescribed for a long time is investing in what you consume. If you like biscuits made by Britannia, buy their shares. If you buy Maggi (made by Nestlé), buy Nestlé’s shares.
These are niche companies, and in the past, they have generated significant returns for their investors. But these niche companies are also prone to being erratic and volatile. In 2015, the Food and Drug Administration of UP, India, conducted testing and revealed that Maggi had more than a permissible lead limit, and Nestlé’s share price dropped 9%. Therefore, individual stocks, including niche companies, are not risk-free.
For investors looking for index beating returns, they have to charter unmarked territories, conduct extensive fundamental research, analyze the role and capability of the management, picture the future potential of the industry and then choose a stock. That’s too much work for a working professional or entrepreneur. Well, smallcase has simplified the complete process:
There are four types of smallcases:
(i) Asset Allocation Portfolio – A combination of large-cap equities, fixed income instruments, and gold.
(ii) Smart Beta portfolio – It focuses solely on large-cap companies.
(iii) Strategic Smallcase – These are established investment strategies biased towards mid and small-cap stocks.
(iv) Thematic Smallcase – These are theme-based smallcases, e.g., Electric Mobility
Features of Smallcase
Smallcase has been further categorized based upon its features. From risk diversification to readymade strategies, here are a few features of smallcase:
Investing in a diversified portfolio is always a better idea than placing all your bets on a single company. Rather than investing in 1-2 stocks that may or may not turn out to be a multi-bagger, the investor should invest in a combination of large, mid, and small-cap.
Any investor who is holding a diversified portfolio will have dual benefits. Enjoy upside in multiple stocks and protect from downside in any particular stock.
Investment in readymade themes
These are smallcases that have been developed by Smallcase’s in-house research team based on the prevalent macro-economic factors, business models, and themes or sectors.
Examples of such smallcases:
Rising Rural Demand – It comprises companies that benefit from increasing rural consumption.
Electric mobility – It comprises companies that are driving India’s transition to electric vehicles.
Investment strategies developed by experts
Merely creating a portfolio is not enough. An investor needs to track news, study quarterly and annual earnings statements, and attend quarterly conference calls conducted by the management. These are all extremely time-consuming. Instead, we need to invest in strategies that SEBI-registered licensed advisors develop.
For instance, Teji Mandi is a SEBI-registered investment advisor, a subsidiary of Motilal Oswal Financial Services; it has two developed two portfolios:
- Teji Mandi Flagship – Concentrated portfolio of 15-20 stocks that blends short term tactical bets with long-term winners (Generated returns over 75% in the last year)
- Multiplier – Concentrated portfolio of small- and mid-cap stocks that are likely to show non-linear growth (Generated returns over 73% in the last year)
If you are a working professional, you may consider these strategic portfolios developed by SEBI licensed professionals. Click here to know more.
Benefits of Smallcases
- Better than Mutual Funds
- Low Management Fee – Mutual Funds charge an annual management fee varying from 0.5 – 2% of the investment amount. On the other hand, smallcase charges INR 100 per transaction.
- Lock-in-period – Some of the mutual funds come with a lock-in period, which means a predetermined period from the investment date during which the investors cannot redeem their units. However, there is no lock-in period applicable in the case of smallcase.
- Dividend – Dividends from stock owned in the smallcase are directly credited to the investor’s bank account. In contrast, in mutual funds, dividends are received by asset management companies, which are then re-invested in mutual funds.
- Flexibility – Smallcase allows investors to customize their smallcase portfolios. Stocks can be added as well as removed. This makes Smallcase a preferred flexible investment solution for an active investor.
The volatility profile
Volatility or risk profile indicates the possible fluctuations in the investment value of the portfolio.
Every Smallcase is categorized into three buckets of volatility:
- Low Volatility
- High Volatility
- Medium Volatility
The volatility is calculated based upon equity weightage in the entire portfolio –
- Equity weightage is less than 40% of the portfolio – Low Volatility
- Equity weightage is between 40% and 70% of the portfolio – Medium Volatility
- Equity weightage is more than 70% of the portfolio & weightage of large-cap stocks in the equity portfolio is more than 70% – Medium Volatility
- Equity weightage is more than 70% of the portfolio & the weightage of large-cap stocks in the equity portfolio is less than 70% – High Volatility.
Smallcase and mutual funds are the wings of the same aircraft as they intend to foster savings into investment. Smallcase offers independence, control, and transparency over your investments. If you haven’t started your smallcase journey, start by learning about it here.