NEW DELHI: As markets have been quite turbulent in recent times, theme-based portfolios are gaining momentum. Smallcases promoted by Smallcase Technologies are baskets of stocks or ETFs (exchange traded funds) that are professionally managed by SEBI-registered investment managers and advisors. Vasanth Kamath, founder and CEO of smallcase, talked to Bivekananda Biswas to throw light on how these theme-based portfolios work and why the investors should invest in them. Edited excerpts:
What is Smallcase and how does it work?
smallcases are baskets of stocks or ETFs (exchange traded funds) that are professionally managed by SEBI registered investment managers and advisors. Each smallcase is based on a specific idea - this could be a theme, strategy or objective - the constituents of which depend on the underlying theme. Some of the most popular smallcases include asset allocation based smallcases (All-weather Investing, equity & gold), factor-based strategies (smart beta, dividend based), models (momentum, value), etc.
The smallcases ecosystem which we are building is an open platform layer for multiple capital market participants (brokerages, distribution apps, investment managers) to create, offer and enable a new class of products called smallcases.
What is the difference between Smallcase and mutual funds?
While both smallcases and mutual funds provide a portfolio-based exposure to equity, the constructs and mechanics differ a lot.
Mutual funds are pooled structures, so an investor gets units of mutual funds whereas with smallcases, the investor owns the constituent stocks in their own demat accounts. Due to this difference, the user experience also differs. For instance, in the case of mutual funds, the investor can track one change daily in the NAV whereas with smallcases, the investor has full visibility and transparency into the composition as well as how the individual constituents are also changing. Also, in the case of rebalancing/changes in composition, there are tax implications in the case of smallcase which don’t occur with mutual funds.
In terms of exposures as well, mutual funds are more diversified and broader whereas a smallcase is a more focused/concentrated portfolio related to the specific idea it reflects. This results in a larger catalog of smallcase ideas and strategies that could be created with a smaller portfolio composition. for example, House of TATAs is a smallcase with all the listed TATA group companies.
Why should people invest in Smallcase instead of mutual funds?
Investors shouldn’t decide between smallcases vs mutual funds, rather should allocate to both in their portfolio; based on the risk tolerance, investment goals and preferences, the proportions will vary from investor to investor.
Investors that are looking to diversify beyond mutual funds into direct equities should look at smallcases as a simpler, healthier and professionally managed way to take this exposure. Ready-made portfolios of stocks/ETFs reflecting various ideas in the form of smallcases become a simpler and more transparent option for new investors to choose from based on what they understand. Portfolio level diversification and professional management also reduces the risks that come with single-stock investing.
How should people invest in Smallcase?
Based on a user’s investment goals, risk appetite, preferred strategy or theme, he/she can choose from 400+ smallcases created and managed by registered professionals. They can use their existing trading & demat accounts with 15+ partnered brokers to login to the smallcase app/website. A user can then subscribe to a smallcase, place an order to buy the whole portfolio with one-click, see the transaction happen in real-time (during market hours), and monitor performance on the app or web.
Users will receive notifications on their smallcase app which tells them when a change to the portfolio is due based on the manager’s regular monitoring and review. User logs in and clicks ‘Rebalance’, and confirms the transaction if they agree with the manager’s suggestions. The platform enables the applicable buy and sell orders through the user’s trading & demat account and confirms when the transactions are executed. User can exit the smallcase at any time.