The Securities and Exchange Board of India (SEBI) raised the minimum investment amount for investors in Portfolio Management Schemes (PMS) from Rs 25 lakh to Rs 50 lakh in a major move in November 2019. For small investors, however, a new option has emerged: managed portfolios by Registered Investment Advisors (RIAs) or Brokers. Smallcase, an investment platform that creates bespoke portfolios, has found its niche in this approach. Smallcase portfolios can be subscribed to by investors following a theme (such as value investing) or an idea (such as India reforms) of Sebi-Registered Research Analyst like Teji Mandi or other brokers.
What exactly is a Smallcase?
For individual investors, Smallcase is a fascinating new phenomenon. A Smallcase invests in a basket of stocks or ETFs that is curated by independent SEBI-registered advisors or portfolio managers.
A Smallcase is a portfolio of up to 50 securities that are carefully crafted around an emerging theme or a central idea. A new government project, such as Digital India, or sectoral shifts, such as Banking Privately, could be a subject. It could be centered on concepts such as All Weather Investing, Gold, Debt, and large cap equity too. The performance of stocks and/or other securities featured in a Smallcase is determined by how the themes or ideas play out in the market.
When you choose a Smallcase like the Multiplier or the Flagship from TejiMandi, you may buy the entire portfolio with a single click, watch the transaction unfold in real time, and track its performance. The fund manager (that’s us) monitors the markets constantly on your behalf and performs Rebalancing measures when and where necessary. When a change to the portfolio is due, a notification on the Smallcase app (also received through email) alerts you. You log in, select ‘Rebalance,’ and confirm the transaction. As simple as that! The Smallcase platform uses your regular trading account to make the appropriate Buy And Sell Orders and confirms when the transactions are completed.
Smallcase makes PMS-quality advisory services available to small investors like you and me. Rather than investing in individual company’s shares, a ready-made investment portfolio is presented that focuses on long-term trends.
• The portfolio investment solution eliminates the need for multiple investments.
• Efforts to locate a magical stock that will increase in value in the future are transferred to the fund manager.
• Entering the market at the ‘right time’ is now converted to ‘any time’ investment.
• Following and capitalizing on the stock market’s fluctuations is made possible.
What is Portfolio Management Service?
Portfolio Management Service (PMS) are investment management services. They are essentially aimed at high net worth individuals and wealthy families who have very large investable assets that run in multiple lakhs. Such investors seek personalized attention to their investment portfolio to not only protect their wealth but also help with strategic decisions to earn capital gains. There may also be a tax angle to it. This is where PMS fits in like a glove.
PMS services of established financial behemoths like Motilal Oswal Financial Services are rendered through the best-in-class fund managers who are skilled in the art and science of crafting customized strategies that help clients meet their specific long-term investment objectives. Stocks, fixed income, and other structured products can all be included in the investment portfolio.
A skilled portfolio manager is assigned who has the complete grasp over market metrics, and they employ this knowledge and their expertise to maximize investment returns for the clients. To produce high potential returns, the manager must have a clear understanding of the investor’s risk and reward expectations and then formulate an effective and adequate approach to investments.
A portfolio investment with PMS can probably be likened to purchasing a phone with tempered glass on the screen. The screen is delicate and susceptible to fracture in the event of a drop, but the tempered glass protects it and reduces the impact on your display. Similarly, economic slowdowns and market downturns have an impact on the stock market and your investments. The PMS’s active decision-making shields the investor from such losses to some extent.
However, as mentioned, PMS is not for everyone. In line with the rising number of millionaires in the country, the minimum investment requirement to be eligible for PMS has been hiked to Rs 50 lakh.
Smallcase vs. PMS
Smallcases like that offered by TejiMandi can be termed ‘affordable PMS.’ Individual investors can either construct a portfolio themselves, or they may invest in a purposefully-created theme-based public Smallcase by an RIA/broker. When we say public, it means that Smallcases are open instruments. Anyone can review the composition of Smallcases and choose to invest in them should it match their risk profile and investment objectives. On the other hand, PMS is highly customized to the client’s requirements, and the particular portfolio is accessible only to the client.
It costs a fraction of the cost of PMS to invest in a Smallcase. Of course, wealthy investors wouldn’t be paying the high cost of personal fund managers if they could do it themselves.
Now, these portfolios are usually available on the broker’s websites and applications. RIAs use Smallcase to establish microsites for their portfolio services. The investor may then use their existing broker to invest in the RIA-managed portfolios and access them seamlessly from Smallcase, the RIA’s microsite, or from the broker’s platform. A PMS service, however, being individually customized, requires the wealthy investor to operate only through their PMS manager.
Speaking about the structure and composition of the funds, both Smallcase and PMS employ specialized expertise and experiences of skilled fund managers to carefully study the markets and pick our suitable securities to comprise the funds. Given Smallcases are relatively new in the market, they only encompass stocks and ETFs (for now), while the portfolio solutions offered under PMS cast a wider net across various assets and asset classes.
This, however, does not take away the stringent risk management measures that the fund managers of Smallcases or PMS put in place to protect the capital in case of turbulent markets.
The difference between a Smallcase portfolio and a discretionary PMS also is in how the portfolios are implemented. Each portfolio transaction in a PMS must be confirmed online or over the phone by the investor. However, Smallcases being technology-led, has made this approval procedure as simple as a few mouse clicks. When there is a justified Re-Balance activity, investors get an alert on their app or on email. The entire portfolio is re-balanced with just a few clicks.
Moving on to the most important aspect of investing – the returns – A PMS can provide excellent results due to its concentrated portfolio services and specific risk-reward approach for the individual client’s profile. Smallcases, on the other hand, are more market-led when it comes to returns and offer cross-investor profile kinds of portfolios. This means the RIAs create various kinds of Smallcase portfolios to suit every kind of risk profile and investment needs. The investor may choose any of the Smallcases that resonate with their needs or interest them by the concept. What this also means is that investors in smallcases need to have some level of understanding of the inherent risks of a smallcase and need to be able to assess the suitability of the portfolio to their own objectives. Of course, a smallcase like TejiMandi’s Flagship is an all-weather portfolio that may suit all kinds of risk profiles.
The Bottom line
While a PMS is a customized investment and advisory service for high net worth clients, a smallcase delivers the same punch for small investors who cannot afford the high minimum investment that PMS charges.
Both services consist of careful planning of a portfolio to capture every opportunity from the market without blindsiding the need for capital protection measures alongside capital appreciation. The fund managers perform an in-depth analysis of the markets and the investment options available to carefully craft a portfolio that will provide the perfect balance between risk and reward to the subscribers.
While PMS is individual client-focused services that encompass the entire gamut of investments available in the financial space, smallcases are more theme-oriented baskets of stocks and ETFs provided in palatable measures and carefully managed by the RIAs for the benefit of all investors.
Check out TejiMandi’s smallcases –
• The Multiplier – a concentrated portfolio of small and midcap stocks that are likely to show non-linear growth.
• The Flagship – a concentrated portfolio of 15-20 stocks that blends short-term tactical bets with long-term winners.