Things to check before buying smallcase – Smallcase checklist

In a country like India, where the retail contribution to stock market investments has yet to catch up with developed markets, the emergence of a new asset allocation technique can cause quite a stir. The newest kid on the block, Smallcase, represents an investment strategy that comprises a bundle of stocks or ETFs based on a certain idea or ideals. Smallcases tug the right chords for a price-conscious audience like Indians. Typically a mainstay of traditional portfolio management services that have historically only been offered to HNIs, Smallcases open up the world of boutique asset management plans to retail investors.

That said, it is important for retail investors to do their due diligence before buying into the idea of smallcase investing. With new ideas and services coming up all the time, how do we know which innovation is worth our time and resources?

The answer lies in understanding how they may be different from prevalent asset allocation models such as Mutual Funds. We’ll quickly take you through the differences in brief before we move ahead:

Shareholding disclosure

The first big difference is that with subscriptions to smallcases, the stock holdings come into your demat account. In mutual funds, you get only mutual fund units, and the holding disclosure happens once a month. You know exactly which stocks each smallcase holds.

Investment strategy

Every smallcase is carefully designed to invest in a certain idea or theme. This is somewhat like a mutual fund but is fundamentally more niche. For example, some smallcases use a high-growth technology theme, while mutual funds may only accumulate stocks in IT companies with a demarcation based on revenue.

Fee for management

Fees for smallcase investing vary from charging 2% of AUM to a flat fee of Rs 10,000 for a minimum investment of Rs 1,00,000. Mutual funds, on the other hand, charge a varying expense ratio towards the management of the fund, which is a percentage of the assets. There is also an entry load in a few mutual funds and an exit load charged, should the investor redeem mutual fund units earlier than a predefined time. Charges for smallcases are exactly the same as charges you may incur when you buy or sell stocks through your broker.

Ease of buying

Smallcases can be purchased and redeemed like stocks, at market value, during a typical trading session. Mutual fund units can only be purchased or sold at the day’s NAV calculated at the end of the trading session. The latter’s buying process can be described as cumbersome at best, owing to the lack of calculation transparency.

Curious to know more about the differences that set apart mutual funds from smallcases? Read our article “Mutual funds vs. Smallcases” on the TejiMandi blog.

Let’s now have a more meaningful look at the investor’s checklist. Here it goes:

1. Who:

Who manages my Smallcase?

While picking a mutual fund, it’s important to consider who the fund manager is, their years of experience, and their area of expertise. Similarly, before zeroing in on a Smallcase and committing a corpus towards the asset allocation strategy, it’s important to get an in-depth understanding of the Registered Investment Advisory that conceptualized the strategy. Assess their expertise in research, accountability over the years, and understanding of the investment business at large. Portfolios are actively managed by experts who take into account key factors like historic returns and risk parameters, a smallcase’s sectoral allocation or a theme that it adheres to, and the financial health of each company that makes up the smallcase portfolio.

When you invest with TejiMandi, this is one step you don’t need to worry about. The expert-class services provided by TejiMandi as your registered investment advisor is at par with global peers. Of course, TejiMandi comes backed by the legendary Raamdeo Agrawal who is on the board of directors of the company. TejiMandi is a subsidiary of the Motilal Oswal group. Read about TejiMandi here or contact us to know more.

2. What:

What’s the inherent investing strategy?

All smallcases are thematic investment ideas that are focused on a niche. From technology-based high-growth stocks to companies with operations in clean energy and waste management, smallcases enable you to aggregate investing ideas across the board. Take a deeper dig at the underlying industry the smallcase is taking a position on and understand if that’s an idea you can stick within the long-term, irrespective of short-term market volatility.

3. Why:

Why is this a risk worth taking?

As mentioned before, smallcase is all about understanding a sectoral niche. In this one, we’ll talk about doing a cost-benefit analysis of taking the plunge. Typically, smallcases charge fee amounts either in terms of a flat fee or in the form of a percentage value of the corpus. Weigh in the costs and chart them against their historical returns to see if there’s an absolute benefit in terms of returns before investing.

4 How much:

How much money should I allocate?

With high potential for returns also comes high risks. Inline, smallcases might prove to be a risk-intensive investment strategy that may help you build wealth on one hand but also pose a significant risk on the other. While the track record of smallcases has yet been excellent, it is an investment after all, and as such, there can be no guarantees. The one thing to remember is not to put in more money than you can afford to lose. Invest in accordance with your risk appetite and be careful not to bite off more than you can chew.

5. How long:

What is my investment horizon?

At the end of the day, the only real reason to make an investment of any kind is to generate returns and fulfill life goals. Whether it’s consistent capital appreciation or predictable fixed income, your underlying objective of investing in the smallcase must be clear from the get-go. Having clarity on this front will help you monitor performance and course correction if things don’t go as per plan.

TejiMandi, as a Sebi-Registered Investment Advisor, may have what you are looking for – smallcases as well as individual advisory service. Hit us up today to get your investing journey on the road!

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Conclusion

Small case portfolios are great alternatives to traditional mutual funds if you want to invest for the long term. They typically offer access to unique investing strategies, proprietary research, offer the diversification, and tend to generate higher returns than other conventional investments Here are the exclusive smallcase offerings from TejiMandi. Check them out now. Just remember that despite this, they are still investments, and as such, there can be no guarantees of any kind. With that said, by taking the right decision and investing in select smallcases, you stand a good chance of reaping the benefits for your future.