InvestorQ : Why the smallcase is better than a mutual fund or vice-versa?
Ankit Patil made post

Why the smallcase is better than a mutual fund or vice-versa?

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Tarun Madaan answered.
1 year ago
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A smallcase is a basket of stocks that may reflect a particular investment theme, idea, or sector. So, a dividend-yield smallcase may be made up of high dividend-paying stocks and an IT smallcase, of leading software firms. Smallcase today hosts dozens of ready-made portfolios and investing strategies that have been created by SEBI-licensed professionals such as brokers and research analysts, using quantitative models and algorithms to screen and weight constituents. It has signed up 100+ advisers, including Deepak Shenoy of Capitalmind and Vikas Gupta of Omniscience Capital.

To invest in smallcases you need a Demat account. When you buy/sell a smallcase, the stocks/ETFs featuring in it will be credited or debited to your account. The minimum investment amount may vary depending on the stocks that make up a smallcase. Once a smallcase is chosen, you can invest a lump sum or choose to run a systematic investment in it. Standard brokerage charges are applicable.

In addition, there will be a nominal, one-time registration fee of Rs100-150. These smallcases are currently free, although the firm is planning to launch fee-based smallcases soon. Advisers can either charge a flat fee or a percentage charge (up to 2.5% allowed by Sebi). You can refer to the link for reference - https://smallcases.indiainfoline.com/dashboard

There are key differences between smallcase and mutual funds. They are-

-If you are investing in smallcases, you get direct ownership of the individual stocks bundled together in a portfolio. This is different from mutual funds, where you don’t have ownership rights in the stocks that form your mutual fund portfolio but you hold units of the portfolio.

-Equity Mutual funds only need to disclose their holdings once a month. Thus, it is difficult to review what your fund owns at any given time. With smallcase, you know exactly what you own because the holdings are available in your Demat account.

-Mutual funds are market capitalization based(large-cap, mid-cap & small-cap, multi-cap, flexicap) or sector-based(ex banking, IT). But smallcase enables you to invest in ideas and themes. For example, one can invest in companies that are working towards green energy if that is where you see the potential. The stocks can be of various market capitalization or sectors.

-Transactions in mutual funds do not result in short or long-term capital gains for fund investors. Since you’re directly buying and selling stocks in the case of smallcase, capital gain taxes are applicable on all profits. Unlike a mutual fund where rebalancing inside the fund is tax-free, rebalancing a smallcase can attract taxes.

-The past returns of portfolios are shown on the platform without adjusting for charges (RIA or RA fees). This is unlike an MF net asset value, which is the net of all expenses.

-In terms of user experience, the scale is firmly tilted towards smallcase. If you want to buy units in a mutual fund, you need to place an order and if you’re lucky, you will get the day’s NAV. Then you wait for 2 days for the units to reflect in your Demat or the folio on the AMC’s website. Repeat the process when exiting. Most investors rely on a monthly email to track performance with a password-protected pdf to track how NAV has progressed. With smallcase, you just need to log into your Demat account and transact, and the stocks/ETFs featuring in it will be credited or debited to your account. Once a smallcase is chosen, you can invest a lump sum or choose to run a systematic investment in it.

-By making basket purchases possible, smallcases allow you to own a portfolio that can be put on autopilot. You are allowed to make changes to the constituents of the smallcase (remove/add stocks) and their weightage, suiting those who like to be more involved in the portfolio. For instance, when a company announces a dividend, a mutual fund may reinvest the money without seeking the unit-holder’s approval. In the case of smallcase, an investor gets to choose whether to reinvest or not.

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