For a long time, finance was an idea, like art. It then became a commodity accessible only to a privileged few. Beyond dinner-time conversations about the rising (or plunging, as the case may be) Nifty and hush-hush tips about companies that may rule the markets of India’s ballooning middle-class, investments, and investing ideas were often approached with an air of mystique. But that was then; 2020-2021 has ushered in a new era of financial literacy and everyone is interested! The pandemic changed the rules of the game and made everyone sit up and take notice of their savings and the need to invest. This is fortified by the record number of Demat accounts opened, even at the peak of the pandemic, when the economy was distressed, and the stock markets diverged and rebounded. Indian investors opened a record 14.2 million new Demat accounts in FY21, nearly three times that of the previous fiscal year, and the Nifty shot up from around 8500 at the end of FY20 to above 14600 by the end of FY21.

Whether it’s direct stocks or commodities, mutual funds or cryptocurrency, everyone is now putting a lot of time and effort into figuring out how to save and build wealth for the future. As the investment landscape heats up and finances as a subject become more accessible to the masses (at last), new and innovative ideas have cropped up and disrupted the industry.

Case in Point: Smallcase

The term ‘Smallcase’ is synonymous with the company of the same name, founded in 2015 by Anugrah Shrivastava, Vasant Kamath, and Rohan Gupta to bring theme-based investments to non-institutional investors. To put it simply, Smallcases are modeled around legacy portfolio management strategies that had so far been reserved for large investors (read HNIs & HNWIs). A smallcase fund or simply ‘Smallcase’ refers to a collection of a group of stocks based on a certain sector, technology or theme that is managed by SEBI-approved fund managers. This is, in a way, a tangible method to invest money into multiple companies’ shares when trying out strategies the fund managers believe could work well together at some point down the road; it introduces an element of diversification instead of cherry-picking ‘industry stalwarts’ among laggards.

Let’s see this with an example:

Suppose you feel very positive about high-growth tech stocks in the long term. You want to invest in them, but are unable to hand-pick the best bets – or you simply don’t have the knowledge or the time to research. In this case, buying a specific Smallcase that invests in the theme will be ideal, instead of buying a random stock from the sector based on a large-cap or small-cap categorization.

Smallcases typically help investors walk the middle path between mutual funds and direct investments in stocks.

What are Smallcases?

Smallcases infuse a portfolio-driven approach to investing; individual stock units will be credited to your Demat account once you make a purchase. This is not the case with respect to a mutual fund, where you gain access to the aggregated fund alone and not the underlying companies.

What this also means is that when you invest in a Smallcase, you become a part-owner in every stock that is in the portfolio of your chosen Smallcase, and you are eligible for dividends and other rights assured to shareholders.

The cost of investing in Smallcases may be comparable to investing in mutual funds, and different Smallcases have different expense ratios as per the RIA (Registered Investment Advisor) handling the portfolio. However, no exit load was applied on Smallcase redemptions. Every charge applicable to stock trading is applicable to Smallcases too.

Smallcases are like liquid stock, with no concept of lock-in periods. They are a way of investing that offers more flexibility and choice, while still being liquid. The lack of lock-in periods means Smallcase investors can get out at any time without losing their entire investment in case it doesn’t work out as planned. Another primary advantage of Smallcases is that you get the services of a qualified RIA for the price of a mutual fund investment.

Moreover, Smallcases facilitate the easy purchase of thematic investments; you can buy a theme or idea as a bundle, like investing in global tech leaders or companies benefiting from rising rural consumption, instead of buying each company’s share one piece at a time.

Smallcases are the perfect solution for those who want to diversify their investments without taking on too much risk. They provide low minimum investment amounts and well-rounded theme-based asset classes as affordable investment options that don’t break your bank account!

How does Smallcase work?

Getting started in investing through Smallcases mirrors that of investing in the stock market in general. This means that if you have a demat account, you’re good to go (Or you may open one through an RIA on SmallCase too). All-in-all, this process is very similar to investing in direct stocks – so a few correlations can be drawn. These are as follows:

  • To use Smallcases, you need to pay a one-time signup fee of Rs 100+GST
  • You can make a one-time, lumpsum investment in Smallcases or make periodic monthly SIPs as you go.
  • Trading and transaction fees, stamp duty as well as brokerage levies applicable are identical to those of typical stock investments.
  • Smallcases are subject to the same clearing and settlement rules as direct stocks; if you buy a Smallcase today, money will be debited immediately and stocks will be credited after the standard T+2 interval (Trading day + 2 days).
  • Smallcases can be bought and sold like stocks during market hours; there is no lock-in period or exit load.
  • You can directly sign in to Smallcase through your existing online broking account, they should have a tie-up with SmallCase.

Are Smallcases suitable for you?

An investment in any asset class must make long-term sense for the individual investor- it must satiate their goals and reward them for deferring immediate fulfillment. Smallcases are no different. There is a wide variety of Smallcases on offer, ranging from those that aim to deliver high returns or the back of substantial risk, while there are others that aggregate companies with low beta and steady growth. Since Smallcases are largely thematic investments, you must have a researched view on the basket of underlying assets. Just glancing at the trailing CAGR will not suffice largely because they do not help you stay put when the market turns against you, as it inevitably does from time to time.

Conclusion

Needless to say, when it comes to investments one size just doesn’t fit all. We must evaluate our reasons to buy assets, the returns we hope to generate, and the amount of time we are mentally prepared to wait it out for. This is also why Smallcases can be a neat addition to your existing portfolio. They give you access to verified, professional portfolio management services at a fraction of the cost of the legacy service.

Teji Mandi is a means to access quality Smallcases – we have 2 portfolios on offer for now – 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.