SmallCase Review : Many investors want to know how Smallcase investing compares to mutual funds and which is superior. Smallcase basket is built on a certain concept filter. The eligible stocks or their weights in the portfolio would vary every quarter.
Your broker would then notify you of the situation. You can either agree to make adjustments to your portfolio in accordance with the updated stock basket or simply ignore it. If you make adjustments, stocks will be bought or sold in accordance with the revised basket allocation. The accompanying short-term or long-term capital gain or loss, as well as brokerage fees, must be paid by the investor.
What is Smallcase ?
Smallcase is a firm that creates Stock Basket for investors to purchase. Smallcase’s primary goal is to make direct equity ownership simple for individual investors.
Smallcase creates these Stock Baskets using a variety of themes, concepts, and techniques. These Stock Baskets’ underlying investment assets are either stocks or exchange-traded funds (ETFs), or both.
Smallcase is a stock basket chosen by an algorithm based on a model, topic, sector, or smart beta. In this review, we will go over everything you should know before investing in such a concept. Many brokers provide the option of investing in a basket of equities. Smallcase is maybe the first instance in India of a distinct business selling such baskets to which several brokers have access.
Investors with Demat accounts in 5paisa, Kotak Sec, HDFC Sec, Edelweiss, Alice Blue, and Axis Direct may now access the Smallcase baskets in addition to Zerodha (which popularised Smallcase). Access to a broker is required for the investor to follow the baskets.
Real investing is done through a brokerage firm. Smallcase provides a stock list and a number of goods.
Investing in a diverse portfolio is usually a better idea than putting all of your eggs in one basket. The notion of Smallcase provides risk diversification and a well-researched basket of equities.
Investors can personalise their Smallcase portfolios if they so choose. Stocks can be added and withdrawn at any time. Smallcase is therefore a versatile investment option for the busy investor.
Smallcase is a kind of hybrid between direct equity and mutual fund investing. Mutual funds offer a well-researched portfolio of diverse stocks, but direct equity investing requires the individual to perform all of the legwork in identifying outstanding stocks.
Smallcase narrows down the equities based on a theme. The investor’s task is to be familiar with themes and to comprehend the underlying drivers of such trends. It is a type of investment that is semi-active.
Which is better: small-case investment or mutual funds ?
Many investors want to know how Smallcase investing compares to mutual funds and which is superior. As previously said, each Smallcase basket is built on a certain concept filter. The eligible stocks or their weights in the portfolio would vary every quarter.
Your broker would then notify you of the situation. You can either agree to make adjustments to your portfolio in accordance with the updated stock basket or simply ignore it. If you make adjustments, stocks will be bought or sold in accordance with the revised basket allocation. The accompanying short-term or long-term capital gain or loss, as well as brokerage fees, must be paid by the investor.
When you purchase a Stock Basket, you are really purchasing the Stocks or ETFs contained within the Stock Basket. It may sound like mutual funds, but it is not.
When you invest ‘through’ Smallcase, you become a direct stakeholder of the firms represented in the Stock Basket. However, when you invest ‘in’ a Mutual Fund, you are just purchasing the Units of the Mutual Fund and not the stocks that comprise the fund’s portfolio, thus you do not become a proud shareholder of a business when you invest in a Mutual Fund.
When a Mutual Fund buys or sells stock from its portfolio, the tax burden is not borne by the Mutual Fund Unitholders, but when a Stock Basket is rebalanced, the tax cost is borne by the portfolio owner. We’ll go into this drawback of Stock Basket in greater detail later.
How Do I Create a Smallcase Account ?
You do not need to create a separate account to use Smallcase. All you need is a Demat Account with one of the 9 Brokers that Smallcase works with.
How to Invest Using Smallcase ?
- Log in with Smallcase and go to the top menu and select Discover.
- Smallcases can be selected based on Theme, Sector, or Idea.
- Assume you choose Low-Risk Smart Beta Smallcase. This smallcase is made up of 15 companies from the Top 150 Market Cap Stocks listed on the NSE, and its goal is to outperform the Nifty Index and Nifty ETFs.
- If you are confident with the existing 15 stocks in the Smallcase, you may begin investing or personalise it by adding or deleting stocks.
- To purchase a smallcase, you must pay a minimum amount, which is determined by the weightage and price of the stocks in the Smallcase.
How to Make Your Own Smallcase ?
Making your own smallcase is a straightforward process. Simply follow the instructions below:
- Log in to Smallcase after visiting the Smallcase website. Once you’ve logged in, go to the top menu and select ‘Create.’ You will be sent to the new page.
- Click on ‘Add Section’ and give the segment a name.
- Next, look for Stocks and place them in your smallcase. (At least two stocks are required for the Smallcase.)
- Choose the weightage of each stock in your Smallcase once you’ve added the necessary stocks. Weightage is simply the proportion of each stock in the portfolio.
- After you’ve chosen your weight, click Invest Now.
- You may invest in Smallcase through a monthly SIP or as a one-time investment.
Disadvantages of Smallcase :
Smallcase’s primary drawback is Portfolio rebalancing.
Smallcase updates its Stock Baskets on a regular basis based on market conditions, and when you invest through a Smallcase Stock Basket, you are encouraged by your broker to make the same adjustments to your portfolio. You can either accept or refuse the offer to make those adjustments to your portfolio.
However, if you agree to rebalance your portfolio, stocks or ETFs connected with the specific Stock Basket will be bought or sold in accordance with the adjustments made in the Stock Basket.
It will raise your taxes since you will have to pay Short Term Capital Gains Tax on any stock sold within a year of purchasing it. It will also increase your Turnover cost if you do not invest with a discount broker such as Zerodha or Upstox. (We conducted a comprehensive evaluation of Upstox vs Zerodha.)
And if any Stock or ETF previously in your portfolio was in Red and was sold during the re-balancing exercise, you must bear the loss on your shoulders.
Conclusion :
At the end of this Smallcase Review, we believe that the notion of Stock Basket is still relatively new in India, therefore we expect to see more and more firms like Smallcase emerge here.
Though the concept of Stock Baskets seems fine on paper, and it might be useful for individual investors to some level, the reality of investing through Stock Baskets is quite different.
Taxes will deduct a portion of the investor’s earnings from regular portfolio updates and rebalancing. Not to mention the loss incurred by investors as a result of selling stocks while they are in the red.
Smallcase is a fantastic tool for us to identify new firms in many industries and themes, but it is not the best investment medium for direct equity investment. Smallcase would be used as a Screener rather than an Investment Medium.
