Smallcase Investments – Portfolios, How to invest, Pros and Cons

Smallcase Investments – Portfolios, How to invest, Pros and Cons

Smallcase Investments – Portfolios, How to invest, Pros and ConsSmallcase Investments – Portfolios, How to invest, Pros and Cons and Review

We all invest in direct stocks or mutual funds. However, both have its pros and cons. What if someone gives you a model portfolio or a theme containing specific stocks? You might like such idea, however investing and tracking could be a biggest challenge. What if when you can buy such stocks or rebalance at a click of button. Here comes “Smallcase” investments. Smallcase is a basket of stocks that reflects a theme or an idea or an objective. There are over 50+ Smallcase investments that investors can review and invest. What is Smallcase Investments all about? What are various Smallcase Investment Portfolios available for investors? What are the pros and cons of investing in Smallcase Investments?

Also Read: Cred Mint P2P Lending Platform Offers up to 9% interest rates

About Smallcase Investments

Smallcase is a basket of stocks which reflects the theme or idea. Smallcase contains stocks and  Exchange Traded Funds (ETFs) with a weightage to track the theme or strategy or objective.

As an example, ‘Smallcase IT Tracker’ is a theme that contains top IT stocks in India. One can select this theme and view the performance in the last 5 years or 10 years (back tested irrespective when it was launched). Investors can review its investment objective, portfolio of stocks, past performance and prospects and consider for investments.

Who creates these Smallcase Investment themes?

Smallcase has an in-house professionals who create these themes. However, there are external professionals too creates them, but comes with additional charge. When it comes to Smallcase in-house professional portfolio ideas, these are completely free.

How to invest in such Smallcase Ideas?

While Smallcase creates these themes, investors need to invest only through specific stock brokers. The stock brokers includes Zerodha, Groww, Alice Blue, 5Paisa, Angle One, Axis Direct, HDFC Securities, Kotak Securities Upstox, Edelweiss, IIFL Securities, Motilal Oswal, Trustline etc.,

List of Popular Smallcase Investments

Here is the list of popular Smallcase investment portfolios trending now. I have given some insights about 3 Smallcase portfolios.

#1 – All Weather Investing

This smallcase has portfolio of equity, debt and gold. It has generated 3-year CAGR of 12.9%. The underlying portfolio consists of Nippon India Nifty 50 ETF, Nippon India Junion Bees ETF, Nippon India Gold Bees ETF and Nippon India liquid Bees ETF. The weightages are 20%, 27%, 30% and 23% respectively. Minimum amount is Rs 4,396.

#2 – Electric Mobility

This smallcase invests in companies which are in focus on technology development, pilot projects and charging infrastructure. This theme would benefit from government plans to increase hybrid and electric vehicles in the coming years. It has generated 0.2% CAGR in the last 4 years. One can see benefits only in future, hence past performance can be ignored. This is completely equity, and it consists of stocks like Amara Raja Batteries, Exide Industries, Motherson Sumi, Sundram Fasteners, Hero MotoCorp, M&M, Tata Elxi etc. Minimum investment is Rs 50,870 (approx.).

#3 – Top 100 Stocks

This Smallcase invests in top 100 stocks. It would use two ETFs Nippon India ETF Nifty Bees for top 50 companies and Nippon India ETF Junior Bees for 51-100 market cap companies. This portfolio has generated 18% annualized returns in the last 3 years. Minimum investment is Rs 946.

#4 – IT Tracker

#5 – Pharma Tracker

#6 – Top 250 stocks

#7 – Dividend Aristocrat

#8 – Equity and Gold

#9 – Rising Rural Demand

#10 – The Great Indian Middle Class

How does Smallcase investment work?

Let me explain this with an example.

An investor wishes to invest in “IT Tracker” Smallcase theme.

This ‘IT Tracker’ Smallcase has list of top IT companies in India like Wipro, Infosys, TCS, Persistent Technologies, Coforge, L&T Infotech, Tech Mahindra, Mphasis, HCL Tech and Oracle Financial Services. It has specific weightages by stock. This portfolio contains 70% Largecap stocks and 30% smallcap IT stocks. This portfolio of stocks and weightage are selected and monitored by “Windmill Capital” which is part of Smallcase in-house. There are no separate charges by Smallcase on this.

The minimum investment is Rs 87,157. This minimum investment is arrived based on portfolio of stock prices and their weightage.

Investors can buy from stock broker and this amount can vary based on the latest stock prices of these IT stocks.

This IT Tracker Smallcase theme has generated 29% CAGR returns in the last 5 years. Rs 10,000 invested would have turned Rs 43,700.

However, IT Tracker portfolio stocks has underperformed between 2016 to Mar-2020 compared to Equity Largecap and outperformed in 2020 (post covid stock market crash) and now in 2021.

Past performance of this IT stock theme along with its benchmark of Equity Largecap can be seen below.

Investor would go to their demat account (whoever providing Smallcase) and select small case “IT Tracker” (e.g., smallcase.zerodha.com or smallcases.groww.in) and click on invest.

If the order is placed during trading hours, the orders are executed immediately (after the funds are transferred). If it is placed off market, one need to wait for next day till the orders are executed.

Once the order is executed, it would take 3 days for stocks to reflect in your demat account (like any other stock).

You can continue to track smallcase performance in the dashboard which you used to create the smallcase (e.g., smallcase.zerodha.com or smallcases.groww.in).

Such Smallcases would be rebalanced periodically (once in a quarter). If any changes, you can click on rebalance portfolio. Buying or selling of stocks would get triggered automatically and investors need not do it manually.

The underlying stocks would appear in the demat account like any other stocks.

What are various charges in Smallcase Investments?

Currently Smallcase does not charge any professional fees. However, when you create your first smallcase with any of the stock brokers, they would charge a onetime fee of Rs 100 + GST. Other than this charge, stockbrokers would also charge regular transaction charges as these are like buying and selling stocks or ETFs.

Pros of investing in Smallcase Investments

Here are some of the positive things about Smallcase investments.

1) Smallcase is a portfolio of stocks based on predefined theme. Investors can invest in the portfolio of stocks by click of button if they feel such themes are going to perform well in future.

2) While investors are investing in a group of stocks, the control is with investors. These stocks would be credited in their demat account like any other stock. They can sell whenever they wish without intervention from anyone else.

3) Investors would receive dividends (if any) from the stocks they are holding directly to their demat linked bank accounts.

4) When a portfolio rebalance is required, with a click of button, investors can rebalance it (buy and sell). Investors need to ensure necessary funds are available for the difference (if any) during such rebalancing.

5) Investors can buy Smallcase through SIP too.

6) Investors need not pay any professional fees (e.g., we pay 0.5% to 2.5% as expense in case of mutual funds).

Cons of investing in Smallcase Investments

Here are some hidden or negative factors of investing in Smallcase portfolio of stocks.

1) Investors need to pay Rs 100 + GST as charges when investing in such smallcase to demat account broker. However, this is only one time. Once you create a smallcase, any future investments in such smallcase can be done free of charge.

2) If there is rebalancing of portfolio required, one need to bear the difference in stock prices at that time. This could be once in a quarter or once in a half year.

3) Past performance of the Smallcase theme is just an indication and does not guarantee any returns.

4) This is not like investing in a mutual fund and leave it. One need to actively review this once a quarter and based on Smallcase theme recommendations, one need to make modifications/ rebalancing.

5) If you want to sell the stocks under small case, you would need Tpin to execute the transaction. While this can be generated through OTP on mobile, this is tedious process.  Sometimes we need to follow-up with demat broker to get this executed.

Also Read: Top 5 Flexicap Mutual Funds to invest in 2021

Should you invest in Smallcase Investments?

Smallcase is a unique investment option. With Smallcase, investors can invest in a portfolio of stocks / ETFs based on a pre-defined theme. Past returns can give an indication how such portfolio has been performing. Some portfolios (like electric mobility) may have underperformed in the past but can give superior returns in the future. Some Smallcase portfolios like “All Weather Investing” has generated 12% annualized returns consistently. Hence Smallcase is catching attention of the investors. High risk investors who are willing to invest in direct equity, however confused about stocks portfolio, can select the portfolio / theme suitable to them. I personally started investing in two themes. I would provide a detailed analysis of some of the top smallcase investments in coming weeks.

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14 thoughts on “Smallcase Investments – Portfolios, How to invest, Pros and Cons”

  1. While the author maintains that its inappropriate to compare the tax treatment of smallcases and MFs, as an investor ,one’s job is to do it all the time. To my mind, one should be vary of the fact that smallcases are Direct equity and if you churn you pay to taxman, but MF can churn to infinity and there is no capital ga8n tax consideration. And in the long term this is very hard to beat.

  2. One major disadvantage of smallcase over MFs is the capital gain taxation. For MFs its passthrough , which is not the case with smallcases. Author should have mentioned this very important fact.

    1. Pawan, Who told you Mutual funds are passthru? One need to pay income tax based on LTCT and STCG. This applies same for equity shares or equity mutual funds. Hence no comparison made. Yes for debt funds there the STCG is up to 3 years and LTCG is after 3 years.

      1. If MF X has stock Y in its portfolio and sells stock Y after 6 months of holding it, how much MF X has to pay as capital gain tax on stock Y?

        1. If Mutual Funds are buying and selling stocks, how does it impact you as an investor? Mutual fund investors need to worry only when they are selling the units to check any taxation.

          1) If you buy and sell stocks, you need to pay capital gains (STCG and LTCG).
          2) If mutual fund manager is buying and selling stocks, you need to pay tax only when you actually redeem

          So mutual funds are not passthru

          1. Thats my point exactly! If I invest and transact smallcases , its tax inefficient visavi equity MFs.

          2. Pawan, As indicated in our article, investing in smallcase is exactly like investing in direct equity except that in smallcase you invest in a group of stocks. It would be inappropriate to say that mutual funds are tax efficient compared to investing in stocks. Both have their own pros and cons. Investors need to invest in an option which they like and in an option which they can achieve their financial goals faster.

  3. I am using small case and I would like to highlight major limitation in smallcase. If you have power of attorney completed with tied up broker then the app is smooth and you won’t face issue with small case. However, if you are under non-poa where you use tpin to Authorize sell transaction then you will face a lot of issue at the time of sale of shares or rebalance. All sales transactions are getting declined. I have been chasing these people since 8 months and twice I had to rebalance portfolio manually through broker app and then sent them screenshot to update in small case app. Very stone age process and customer service is very poor. I finally decided to exit this product. There is no integration of small case platform with broker app for non-poa customers. You will find many similar reviews on play store reviews. Thought of sharing my first hand experience so that it helps people.

    1. Thanks for sharing your experience Zubin. Yes I did added this as one of the concern after publishing the article. I just cleared the cache, hopefully visible to all users.

      1. I think this issue can be overcome if you do TPIN Authorization first on the day of selling before hitting rebalance from smallcase. This will allow sell orders to be accepted from smallcase.
        The bigger issue is perhaps when you try to sell when the stock is in lower circuit or buy when it is in upper circuit in which case the order might fail. Another drawback is there is no limit orders, you always buy at market price

  4. Few more limitations are:

    Orders are executed at market price. Limit price cannot be set.

    As prices go up, the minimum investment (per month or while rebalancing) required will go up. Buying same quantity has this limitation as compared to investing fixed amount every month.

    1. As indicated in the article, these would be executed at current market prices. If you are putting off market, these price of portfolio is based on previous day closing. If you are putting during trading hours, it would show current market prices. Yes, you cannot put limit price.

  5. Dear Mr.Suresh,
    This is informative and good for beginners and people who do not have time but, can still participate in stocks. In small case can we ourselves create small case portfolio and also multiple portfolios can be created say portfolio 1,2 ?

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