How to Select smallcase?/Investing in a Smallcase?

 

Investments are like shoes; one size rarely fits all. We separate our work shoes from our trekking wear simply because the two respective forms of footwear serve very different purposes; similarly, when it comes to investing, there are a lot of options to choose from depending on what your end goal is. You can invest in stocks, bonds, real estate, and a number of other options. In fact, if you’re a millennial investor, one of the newer (more transparent) ways to invest is through Smallcase.

Smallcase is a curated online investment platform that allows you to invest in a number of stocks and ETFs through unique investment baskets of the same name. Smallcases are theme-based investments that are expertly designed by expertfund houses based on different sectoral themes and risk appetites. You can choose from a variety of different options, or you can create your own smallcase. You can also choose to invest a small amount of money or a large amount.

How many Smallcases can I potentially invest in?

According to this article published in CNBC TV-18, there are over 250 baskets of stocks on the Smallcase platform, of which over 120 are managed by SEBI-registered Smallcase managers, like Teji Mandi. There are no restrictions on the number of Smallcases you may invest in, or on the number of units of each Smallcase you may subscribe to. That said, investing in too many Smallcases may prove to be rather counterintuitive as it may lead to portfolio overlaps and/or over-diversification of your investment portfolio. But which Smallcases must you invest in, how much and for how long?

We’ll address these questions ahead in the next section.

Selecting the right smallcase(s)

Like we mentioned before, there are a lot of different Smallcases to invest in on the platform and picking the right ones can be a bit daunting. Don’t worry; we’ll help you shortlist.

Set an Investment Goal

The first step is identifying your investment goal. What do you want to use the money for? Once you’ve identified your goal, it becomes much easier to decide which smallcase to invest in. Let’s take two examples:

Investment goal: To park your money and earn returns while leaving it untouched for a long time (15-20 years)

Investment goal: Retire early and withdraw the entirety of your corpus by 40

What do you think would be more suitable for these goals? A Smallcase which invests in stocks or a Smallcase which invests in bonds or debt funds?

Investing in stocks would be more suited for the individual who wants to achieve capital growth over a period of time. So a Smallcase, like that offered by Teji Mandi through its two portfolios – the Flagship and the Multiplier – may be explored by investors with suitable risk appetites. The two predominantly invest in carefully crafted portfolios of stocks with an aim to generate maximum returns for the investors through strategic diversification and risk management measures.

On the other hand, investing in debt funds would be more suited for someone who seeks stability and regular returns over quick capital appreciation. There are plenty of Smallcases aimed at such investor profiles too.

That being said, it is important to remember that all investments involve risk, and there is no guarantee that you will achieve your desired outcome simply by investing in a particular smallcase. You must always do your own research before investing in any financial product.

Decide on an investment corpus

This question is a more complicated one to answer as there are no fixed rules. There are certain factors you must consider before investing in any particular smallcase. For example, if your investment horizon is short, it may be unwise for you to invest in risky Smallcases which hold equity or stock-based instruments for the same reason that investing in stocks during a bear market can be unwise. Moreover, there are entry barriers for certain Smallcases – some have a minimum investment amount defined upfront, of INR 5,000 – INR 1,00,000. You may want to consider exposing that much of your capital to market-linked risks before investing.

While investing this corpus, just like mutual funds have expense ratios, Smallcases may also have a charge towards expert fund management. This cost may be on a subscription basis where you pay a flat fee, or some Smallcases may charge you as a percentage of the investment cost. You may want to also consider this expense towards fund management of smallcases which may at times be as high as 2-3% of investment value.

You must also consider your risk profile before deciding which smallcase to choose. Generally, the Smallcases with higher returns have higher risks associated with them as compared to traditional mutual fund investments.

Understand the Investment Strategy

An important thing to understand before investing in any smallcase is the investment strategy of the fund manager. This will give you a better idea about the types of risks involved as well as the potential returns you can expect. For example, a Smallcase which invests in emerging technology stocks is inherently riskier than one which invests in large-cap stocks. Therefore, it is always a good idea to read the investment methodology and the fact sheet and assess the risk factors before investing in any particular smallcase. Since the platform discloses details about the fund house that manages each fund house, it’s recommended that you research their capabilities well before investing.

Teji Mandi portfolios are managed by expert fund managers led by the experienced Mr. Vaibhav Agarwal under the aegis of ace investor Mr Raamdeo Agarwal of Motilal Oswal. The investment team specialises in doing one thing well – picking stocks. So that is one worry you may set aside when you invest with Teji Mandi. Read about the company here.

Compare their returns

Lastly, when comparing returns of two similar smallcases, the deciding factor may eventually boil down to competitive returns. Intuitively, the fund with the better retrospective performance can be preferred since the fund manager is likely to leverage similar insights in the future to safeguard returns. This is not always the case, however, it’s a good metric of measure to keep in mind.

Conclusion

Investing in smallcases can be a great way to achieve your investment goals with relatively reduced risk. However, it is important to remember the following things:

  • Do your own research before investing in any financial product
  • Understand the investment strategy of the fund manager
  • Be patient and don’t expect immediate results
  • Remember that all investments involve risk.
  • As long as you do the above, your investment journey will be a fruitful one.