Smallcase investing: Here’s all you need to know

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The new term ‘smallcase’ is something that is catching on with digitally savvy investors. One can perhaps think of it as the portfolio management services (PMS) for a retail investor, where there is no such high entry barrier, like the Rs 50 lakh investment fee that applies to PMS.

The new term ‘smallcase’ is something that is catching on with digitally savvy investors. One can perhaps think of it as the portfolio management services (PMS) for a retail investor, where there is no such high entry barrier, like the Rs 50 lakh investment fee that applies to PMS.

A smallcase, what is it?

It is essentially a basket of stocks or ETFs, curated around a specific theme, or a specific investing style.

How is it different from a thematic mutual fund (MF)?

The basic difference is that in a mutual fund, one owns the units of that fund whereas, in a smallcase, one actually owns the underlying stock.

It’s actually a website where you can go. It’s a Bengaluru headquartered company that was set up by three IITians back in 2015. They launched the offering in 2016. This is a platform that essentially connects investors with portfolio managers who curate these specific smallcap baskets with their research expertise and then the investment is made via brokers, which have tied up with the platform, which is smallcase. So it’s a meeting of three stakeholders.

A lot of high-profile names have bagged this company, smallcase. Sequoia, DSP group, Nithin Kamath of Zerodha, Premji Investments and recently even Amazon has now taken a stake.

So what are the type of curated portfolios on offer?

There are over 250 portfolios available as of now, smallcases as they are called. They range from a whole different type of themes. There are a huge number of managers on the platform. Capitalmind of Deepak Shenoy, Emkay, Aurum Capital, KRChoksey – Windmill Capital is offering lots of portfolios, lots of smallcases on this platform.

So again, back to the basic question, how is this any different from a mutual fund?

Since a smallcase investor owns the underlying stock and not the mutual fund unit, rebalancing, the portfolio can become a little tricky from the taxation standpoint. Every time a stock is sold, as the portfolio is rebalanced, capital gains tax must be paid on any profit made. And it’s very simple. It’s the usual LTCG, STCG regime that applies 10 percent on long-term, and 15 percent on short-term, but the good thing is that rebalancing is neither automatic nor mandatory.

So, one needs to approve it as an investor only then it happens. Otherwise, the investor can just continue with the old, original portfolio, so the choice rests with you.

The other thing which makes it perhaps a little interesting for retail investors is one can actually do is systematic investment plan (SIP) in your chosen portfolio. So in some ways, it’s perhaps a concept that attempts to bring together the best of both worlds for retail investors, professionally managed curated stock portfolios with the convenience of a low ticket size SIP mutual fund.

Watch the accompanying video of CNBC-TV18’s Surabhi Upadhyay for more details.