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More investors are flocking into mutual funds, as per data released by AMFI earlier this week. However, social media financial influencers as well as SEBI-registered investment advisors are advocating smallcase investments as the next big thing for investors looking at beating the street.

“It is the least expensive way of buy a portfolio of stocks and it is a brilliant, brilliant product,” said Ankur Warikoo, founder Nearbuy.com, in a YouTube video he released on 4th May 2021. Warikoo is also a YouTuber with a growing following of investment-related videos.

The cost of investment, however, oftentimes depends on the fee of the manager responsible for the smallcase.

Smallcase is not a mutual fund

In a nutshell, smallcase is a basket of anything between two to fifty stocks bundled together and managed by SEBI-registered investment advisors. It allows an investor to physically own each stock in his or her demat account, unlike a mutual fund, where the investor is not a shareholder, but a unitholder.

Smallcase big on returns

Filtering the options on the smallcase website shows extremely handsome returns as high as 186.21% on an investment of Rs 31,771. There are at least eight smallcases returning over 100% to investors. Among these, Green Portfolio’s High Dividend Yield + Capital Appreciation smallcase is available for as low as Rs 22,580, with a CAGR of 104.15%.

The number of portfolios offering negative CAGR too, are aplenty. So trust in the manager and researching past performance, just like any other investment, is an important aspect to consider before investing.

Managed by SEBI-registered advisors

The manager of a portfolio tinkers regularly with the basket of stocks to deliver maximum return (higher alpha) compared to benchmark indices. In doing so, the stocks that comprise the smallcase basket may be more volatile (high beta) and hence, riskier.

Managers actively add and remove stocks from the smallcase to get investors the best possible return in the prevailing market scenario.

The manager of a smallcase charges a quarterly fee to manage the portfolio, just like a portfolio management service. More the potential upside in a smallcase, higher is the manager’s fee.

Big bets on smallcase

From social media influencers in the personal finance space to Registered Investment Advisors as well as Portfoilio Management Services are taking the smallcase creation route to lure investors and compete with Asset Management Companies that manage mutual funds.

“Smallcase can provide style diversification across portfolios. There are very few schemes catering to the theme of special situation in mutual funds. Smallcase are comparatively cheaper if one is going for flat fee structure. The stocks are in user demat account and can be sold or rebalanced at one click,” said Amit Kumar Gupta, Portfolio Manager at Adroit PMS that has launched a smallcase focussed on capital appreciation by creating a basket of mis-priced stocks facing a special situation.

Is smallcase big investment?

In most cases, yes. While there are smallcases as low as Rs 150 also, these are not necessarily the actively managed ones that beat indices. While most high-return investments carry an entry price of a few thousands, some also run into lakhs, depending on the prices of the shares that make each small case, and the weightage given to them.