What are Smallcases, the new city investing game

Smallcases is an organized thematic portfolio developed by Smallcase Technologies, a financial technology company launched in 2016 by three graduates of IIT Kharagpur. It allows investors to park their funds as they see fit and in recent times they have become the talk of the town.

The platform allows one-click investing in a basket or portfolio of stocks and ETFs in a specified weighting to reflect certain themes or strategies called “smallcases”. Usually, these portfolios are created by a team of analysts and have small banknotes, which makes them important among retail investors. So when someone says they bought a small suitcase, it means that they bought a certain basket of stocks offered on the platform.

Some themes / strategies that investors can choose when buying a small suitcase are ‘digital businesses’, or ‘dynamic stocks’ or ‘value stocks’ or ‘rural demand stocks’ etc.

How many baskets / small suitcases are there? Who offers them?

To date, 250 baskets of shares exist, 120 of which are managed by smallcase managers registered with SEBI. Indeed, any person registered with SEBI can offer a basket of shares on the Smallcase platform.

The most popular smallcase portfolio managers are Windmill Capital, a subsidiary of the smallcase platform. There is also a Weekend Investing led by Alok Jain, Capitalmind led by Deepak Shenoy, etc.

How to buy a small basket?

You must contact one of the 12 brokers who have become attached to smallcase. Thanks to them, you should be able to see the small suitcases on offer and decide which one to buy.

An important characteristic of a small basket is control. When the smallcase portfolio is rebalanced or updated by its manager, you have the option to apply the change or ignore it. You can also make changes to the update before applying it. So you are in control of your portfolio.

What is the cost of owning a small basket?

As an investor, you must pay a research fee to the small business manager. It can be fixed or based on a percentage. Meanwhile, the smallcase earns money by taking a share of the smallcase manager.

What are the advantages and disadvantages of owning a small basket?

Smallcase gives you a degree of control you can accept or reject a change recommended by the manager of smallcase. In addition, the churn in the wallet is transparent, since you can approve or reject each change.

One problem, however, is that small case managers have the research bandwidth and prowess of a traditional money management setup? Second, you will have to pay higher taxes. Because every time you sell a stock, you pay short-term capital gains tax, unlike a mutual fund (you pay when you redeem your shares). Thus, the overall tax burden in this structure would be much higher. Third, there are risks of concentration of a particular strategy, theme or sector. And finally, it’s still a relatively new way to invest and it has only seen a bull market. His real test will be when the cycle turns and the going gets tough.

For now, smallcases continue to attract investors and flows. This pull is due to a combination of factors such as poor mutual fund performance and the DIY itch. And of course, the global explosion of young people participating in the markets.

To discuss this new investing game in detail, CNBC-TV18 spoke to Vasanth Kamath, Founder and CEO of Smallcase and Alok Jain, Founder of weekendinvesting.com.

Kamath has seen many investors wanting to do DIY to build their portfolio. “They opened Demat accounts and the entire portfolio building process was left to them. So we felt a product like this where you have a professional manager, diversification while having the transparency and control that you would have with stocks. The idea made a lot of sense in this construction, ”he said.

This is new behavior and many users are coming to the platform, he added.

Speaking of the most popular small cases, he said asset allocation ones remain popular. For example, the all-weather small suitcase isn’t just stocks, it holds stocks, gold, and fixed income.

The most recent smallcases launched offer exposure to global equities and fixed income instruments in various formats. “This would be our main focus for the future of the company, where we could add more asset classes and instruments, so that it is not just an equity investment platform,” added Kamath.

Jain said this is a win-win situation for everyone as this new ecosystem has allowed people to put agile strategies in place. “In the crisis we went through in March 2020, even in 2018 when small caps were collapsing, we could see that our portfolios were able to outperform even when markets were going down,” Jain said, adding that when your portfolio begins to outperform when the market goes down as well as up is a magic performance matrix.

For the full discussion, watch the video.