Money Masterclass | Should you be adding smallcase to your portfolio?

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Wondering whether smallcase is right for you or should you stay invested in mutual funds only? You are not alone. Many investors who have tasted success in the bull market by staying invested through the pandemic have become more ambitious and are eyeing smallcase as the next logical step in their financial journey.

But is smallcase really meant for you? What is the investment ticket size, expenses, and risks associated with smallcase against mutual funds? Here are some excerpts from what Deepak Shenoy, founder & CEO, Capitalmind told Money9 in an exclusive Money Masterclass interview.

Q: For a layman, is smallcase an alternative to mutual funds?

Shenoy: Smallcase is not a mutual fund – it is just a way to buy a basket of stocks. It is not as tax efficient as a mutual fund, and the use case for smallcase is very different from a mutual fund.

Q. Why are smallcases considered more expensive than mutual funds?

Shenoy: Unlike mutual funds, smallcase works on fixed-fee models that are often not a percentage of the investments. Hence, costs are high if you purchase a published smallcase but have very little funds (say, paying Rs. 10,000 per annum makes sense if you invest Rs 10 lakh, but many investors want to invest smaller amounts). So published smallcases are good for people who have more investable amount. Also, the slippage and execution costs can be higher.

Q. Describe the persona of a smallcase investor versus a mutual fund investor?

Shenoy: Smallcase investors are looking for a basket of stocks that meet a certain criterion and to manage the process and rebalance on their own. The outlook is to target a certain theme which a mutual fund may not be able to do, or to do a combination of mutual funds also (ETFs) which is customized to them.

Q. How big should an investment be for making the most of smallcases?

Shenoy: Investment depends on the smallcase itself. If it has small cap stocks you do not want to put a lot of money. If it has stocks that cost more than Rs 5,000 per share, then your minimum may be quite high.

Q. How are stock selection and rebalancing expertise in smallcases different from mutual funds?

Shenoy: Mutual funds will have different criteria in terms of liquidity, size, target of the fund, etc. Smallcases can be market cap-agnostic and may not have size constraints. Strategically, money management is very different from stock recommendations.

Watch the entire conversation here