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Are you looking for the best smallcase to invest in 2022? Well, you just landed in the right place. Brokerages are now offering smallcases, portfolios of stocks, or ETFs.
They are the new and simplified way for investors to invest in small case stocks. The smallcases comprise a logically compiled basket of up to 50 stocks that focus on a specific theme, strategy, or idea.
You can invest in a small cases based on the theme that you are positive about. Once you have decided on a smallcase, you can invest in it with just three clicks.
While they strategically put together the stocks in each smallcase bucket, they are not a recommendation or investment advice for investors. Investing is the choice that everyone must make by accessing the risks and profits.
If you want to know what is smallcase than In this piece, learn everything you need to know about smallcase before investing. Let's get started.
Smallcase Review: Know Everything (2022 Updated)
How Does Small Case Work?
A smallcase is a collection of up to fifty stocks focusing on a specific theme. The product was introduced in early 2015 by a startup called Smallcase.
Rather than mutual funds, it gives investors access to a selection of pre-made stock portfolios. Smallcase, which has created several smallcases, was the first to use it, but brokers swiftly followed suit.
The brokers formed a partnership with the company and began offering their smallcases.
The creation of a smallcase caused substantial investigation and research. Brokers regulated by SEBI, consultants, and analysts employ algorithms and quantitative models to screen through various securities to create a smallcase.
So, how does it work? How do you make a smallcase investment?
The primary criterion for small case investing is that you must have a Demat and trading account. Once you have them, you can start investing a lot of money in one smallcase or a group of smallcases in a smart way.
Investing in smallcase is very much like investing in stocks. You must pay the registration fee, which ranges between Rs 100 and Rs 150. You must also pay the brokerage fees besides the transaction fees.
For investing in the smallcase, you can do so as a whole, but you also have the option of making adjustments. You can exclude stocks from the portfolio you don't want to invest in.
You can also choose the number of funds you want to allocate to each stock in the portfolio. Investing in the smallcase is identical to that of other securities.
The shares are sent to your account as soon as they deduct the amount from your account. There are also no restrictions, such as a lock-in period, so you can sell them whenever you choose.
Smallcase Overview
When you invest in smallcases, you get the ownership of each stock in the portfolio. It differs from a mutual fund where you don't own the stocks. Instead, you hold units of the portfolio. It may seem like a portfolio management service at first, but it doesn't have a ticket size of Rs 25 lakhs.
Who Should Invest in Smallcases?
Investors who do not have the time to go through all the stocks should take advantage of smallcases. Since it is a collection of potentially profitable stocks compiled by experts, you can use it as a source of facts..
With more research, you can narrow down the stocks that are most likely to make money and make your smallcase accordingly.
Investors who do not have the time to devote to study and analysis can opt to follow the smallcase portfolios of well-known money managers.
However, the investor determines when to enter and exit the investment. Hence, if you wish to minimize risk while maximizing return, you must carefully investigate the entry and exit times.
Remember, while the smallcase portfolios of experts can be a valuable insight, the entry and exit times are still up to you to decide.
How to Buy Smallcase Baskets?
To get started, you must contact one of the 12 brokers that have partnered with smallcase. Among such partners are Kotak Securities, HDFC securities, 5paisa, Edelweiss, Zerodha, and Axis Securities.
You can look at the smallcases on offer through these brokers and determine which one to buy. Remember that the smallcase baskets are strategically compiled, but you can still customize the portfolio.
You can choose to skip stocks of your choosing and even decide how much money to invest in each stock.
How many baskets/smallcases are there? Who offers them?
There are 250 smallcase baskets available. The Securities and Exchange Board of India (SEBI) registered managers handle 120 of these baskets, and anyone registered with SEBI can offer a basket of stocks on Smallcase.
Windmill Capital, a subsidiary of Smallcase, is the most preferred alternative for buying smallcase baskets.
What are the Charges for Smallcase?
If you invest in a pre-made smallcase basket, the small case charges is Rs 59. Although, if you decide on customizing it or creating a smallcase of your own, the platform charge is Rs 118.
There are also brokerage charges involved when investing in smallcase. The charge varies for each broker but is free for discount brokers like Zerodha.
As for Portfolio Advisors, there are two types of fee structures; you can pay them quarterly or annually. According to SEBI rules, the fee for each advisor is different, but it can't be more than 2.5% of the total value of the portfolio.
Last, there is Capital Gain Tax (STCG & LTCG), and it varies according to the holding period. If it's less than a year, 15%, and if it exceeds a year, 10%.
Important Things to Consider Before Investing in a Smallcase
Now that you know what smallcases are, you surely want to hop on and start investing. However, there are some important things that you need to know if you want to make a profit. Here they are.
The Price You Pay Vs. the Amount You Invest
The key factor to consider in smallcases is the subscription fee. You can pay the subscription annually, semi-annually, quarterly, and monthly. This fee is the first thing you need to recover to make any profit.
For instance, if your subscription fee is Rs 3,000 and you invest Rs 10,000, you need to make at least 30% to recover your initial investment. Any hopes for profit start after recovering the subscription fee.
If you invest under Rs 1Lakh in a smallcase that has a subscription fee of over Rs 10,000, your chances of surpassing market return net of costs (investment return after taxes, inflation, and other fees) are nearly zero.
As per experts, only subscribe to smallcase if your subscription fee does not exceed 3-5% of your investment amount.
What scale of returns to expect?
Smallcases are relatively new, and investors most often have unrealistic return on investment expectations. It is a follow-up to the previous point, but it is the most important thing to think about before subscribing.
If your long-term investment strategy is based on short-term gains, you're setting up for disappointment. It's no secret that there will be times of negative returns, as it is like investment strategies.
Most smallcases aren't for investors who may panic during a negative return of 10% and more.
For example, the capitalmind momentum smallcase shows an amazing return of over 50% since 2019.
While previous performance is certainly great and keeps investors optimistic, how long do you think it would sustain the same growth rate? Long-term equity strategies do not sustain 2-3X returns endlessly. So don't get your hopes too high and expect unrealistic returns.
Transaction Costs, Slippage, and Taxes
While we are still talking about returns, note that several deductions, such as taxes, further cut down your profit.
Taxes: In mutual funds, the gains processed during the ownership of the units are not taxable. Instead, the investor only pays taxes when they exit, but that is not the case for smallcase.
These gains are short-term gains, and the investor has to pay 15% SGST. For a straightforward NIFTY buy and hold strategy, a rebalancing smallcase would have to outperform by 5%, that's 500 basis points.
Slippage: Slippage occurs when the price at which your order is completed differs from the price at which it was requested.
Because smallcase market orders are no limit orders, there is a considerable chance of slippage negatively affecting the entry or exit price, especially when dealing with enormous volumes.
Transaction costs: Smallcase rebalances create transactions to bring your weights back to the way they were when you first set them up.
Each rebalances triggers buy and sell transactions for both stocks that are being sold along with the ones that aren't. While the brokerage and STT apply, each sale adds another charge called the Depository Participant Charge.
Also, it is the same in all scenarios, be it a sale of one stock or a hundred. You have to pay Rs 13.5 + GST.
Things May Go Wrong Anytime. Be Prepared
The market order for buying and selling smallcases doesn't always go the way you want them to. Here's what you need to know to stay prepared and make the right decision in such circumstances.
Stocks hitting upper or lower limit: When stocks hit the upper limit while buying or lower limit while selling will cause errors. This is because the stock you sell has no buyers, or the ones you want to buy has no sellers. It depends on the buyers and sellers of the stock.
Although, you can rebalance the smallcase when the stock is being traded again.
Stock needs TOTP enabled: Several brokerages employ additional procedures to enable shareholders to acquire or sell specific shares. An OTP-based brokerage account login is frequently used to purchase or sell securities on this list.
An OTP-based smallcase login is frequently used to buy or sell securities on this list. If your stock is on this watch list, you would have to make the changes, or your order will get delayed.
Should You Invest in Smallcase
A long-term investment strategy is required when investing in smallcases. Since most smallcases are long-term investments, they could underperform. If investors don't have a prolonged viewpoint, they should look for alternatives.
What are the disadvantages of Smallcase?
- Like any other investment asset, smallcase has limitations too. Here's everything you need to know.
The thematic nature of smallcases carries a moderately high risk and is not the right asset to invest in for beginners who have just started.
- Unlike mutual funds, where you own a portion of the stock, in smallcase, you own the entire stock. Since you are going to the entire stock, you will require a large investment amount. There are a few that start at Rs 200, but they often are EFTs and not stocks.
- The subscription cost on smallcases is high, and if you're not able to scale your investment funds, this is not the right fit for you.
- Smallcases managed by professionals often require rebalancing. Usually, it's done quarterly, but some even do it weekly. Since rebalancing requires generating transactions, it would incur brokerage charges.
Also, as these transactions expose investors to short-term capital gains, it further adds 15% tax.
What are the Pros and Cons of Owning a Smallcase Basket?
Let's look at some of the pros and cons of investing in a small case basket.
Pros
- You own the entire stock instead of some unit in the case of mutual funds.
- Dividends up to 10 Lakhs are tax-free.
- Experts using algorithms and extensive research create every smallcase basket.
- For investors, the toughest decision is when to, but the rebalancing feature of smallcase takes care of it.
Cons
- While the rebalancing feature is a great option, it incurs additional brokerage charges and taxes every time a smallcase is rebalanced.
- The performance charts are not precise as they do not consider brokerage and taxes.
- The investor has to invest actively and frequently churn smallcase baskets.
Conclusion
While smallcase is relatively new, it is still an excellent option for novices and investors that can't dedicate time to research and analysis. Although, its thematic nature requires you to do thorough research on the included stocks.
Remember, like every equity option, smallcase too carries risk. Also, at the end of the day, the time of entry and exit is still up to you. So do your due diligence before investing.
I hope you liked our article on smallcase review, and it must have solved your queries such as best smallcase to invest in 2022, is smallcase safe or how to invest in smallcase
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Frequently Asked Questions
1. Is smallcase good for investment?
The smallcase baskets are strategically placed stocks/EFTs that cater to a specific theme, idea, or strategy. It is one of the best equity investment products for investors who want to build a diverse portfolio but don't have the time to spend on research to select the right stocks.
2. Is Smallcase approved by SEBI?
SEBI-registered research analyst Windmill Capital Private Limited (SEBI Reg number. INH200007645) is a wholly-owned subsidiary of the corporation that does research on the Indian capital markets.
3. How does compounding work in smallcase?
Continued investment yields returns on both new investments and profits already achieved.
4. Is Smallcase a startup?
Wealth management startup Smallcase aims to make stock investing more accessible for everyone. Investing in Indian equities is made easier with the help of the platforms and solutions that this firm creates.
Equities and exchange-traded funds (ETFs) that have been strategically weighted to represent a particular notion make up a smallcase. It was created in Bangalore, India, in 2015 and is now headquartered there.
