As of December 2021, there are around 250 Smallcases created and managed by 120+ SEBI Registered professionals. Although these investments intuitively make a lot of sense for a host of investors, it can be a daunting task to decide which investment is best for you. So below, we will outline some points to consider when making your decision.
The first question you need to ask yourself is: What am I trying to achieve? This is the key question as it will determine which asset class best suits your needs. If you are looking for capital preservation in an “unfriendly” investment environment, then cash or investing in a liquid fund may be more suitable for your needs. However, you may also want to explore Smallcases that follow an ‘all-weather investing’ theme to ensure you don’t miss out on opportunities.
Investing Style
Expected Returns
What is your return expectation? Your return expectation should be in line with your investment timeframe. For example, if you are investing for the long term (5+ years), you can afford to invest in a Smallcase with higher risk as you have time to ride out any bumps in the road. Conversely, if you are investing for the short term then it is best to stick to a more conservative Smallcase with lower risk.
Portfolio Construction
While evaluating Smallcases to invest in, you also want to ensure that the portfolio of stocks/ETFs included is relevant to your needs. The Smallcase platform allows you to build portfolios on your own or on the suggestions of experts such as Teji Mandi . You can also see how different allocations within the Smallcase have performed historically. To keep your risk to a minimum, it is best to use an asset mix that suits your profile and holds the same stocks over extended periods of time rather than frequently changing your holdings to chase after higher returns
Risk Profile
Investment Capital & Time Horizon
For example, if you have lots of time on your side, then it makes sense to be more aggressive and invest in Smallcases with higher upside potential. If you are looking for income generation over the short term (1-5 years), then focus on investments with stable cashflows.
Portfolio Managers
Goal-Based Investing
This brings us to the last point of this article- goal-based investing (for example, saving up for a house downpayment). If you are saving up for a house downpayment, then the best you can do is to pick investments that have a low correlation with your existing portfolio. You want to diversify away from your current stock holding so pick some stocks from different branches of the industry (i.e tech vs industrials). This will help your portfolio with diversifying the risk from market fluctuations as the time for withdrawals nears even as your portfolio builds with capturing maximum returns from the market.
