What is Small Case? How is it Different from Mutual Funds? Should you Invest: Because of the Lower Fees, Transparency, and various other benefits provided by the Small cases, more than 1 lakh clients have stirred from Mutual Funds to Small cases. Any individual may have got confused about whether to invest or not. That’s a question of million-dollar which shall be addressed in the article today.
What is a Small Case?
A small case is a group of Stocks/basket/ETFs built on a selective Sector, Theme, Idea, or Strategy. Small cases are managed and created by Registered Professionals from SEBI. Small cases are comparable to Mutual Funds but come with higher transparency, better ownership perks, no lock-in period, and lower handling costs.
Let’s follow with an example about the Small case:
Let’s say, Keeping in mind the current pandemic situation. In May 2020, a person decided to invest in Stocks of Pharmaceutical. The individual believes that the companies providing pharmaceutical products will be in great demand in the near future, hence resulting in increased stock prices.
The individual is aware that investing all their money in a single pharmaceutical stock is pretty risky once an individual starts looking for options with lesser risk and comes across a Pharma Tracker Small case.
One should find out that the small case consists of a basket of 9 Pharma Stocks and start exploring more about the Pharma Tracker Small case.
One should finally decide to invest ₹ 1,00,000 in Pharma Tracker Small case in May 2020.
After six months, as of the month of October 2020, the investment value of the individual would be worth ₹ 1,39,460. That’s a growth of roughly 40%.
Getting back to the meaning of the Small case, Pharma Tracker Small case was built on a policy of investing in the Sector of Pharmacy. Similarly, several small cases represent diverse Themes, Strategies, Ideas, Sectors.
Small Case vs Mutual Funds, Which is Better?
Here are the top differences between Mutual Funds and Small case:
Low Fees: As per Expense Ratio, Mutual Funds charge up to 1.5 – 2% annual fees on the investment amount. On the other deal, only when one transacts, a Small Case charges. The average fee would be 0.2% for Small case Investments. For instance, let’s suppose the investment has grown at the rate of 15% CAGR, and an individual invested ₹ 1,00,000 20 years ago. Here’s what the Value of Final Investment after Fees would look like in the case of Small cases and Mutual Funds:
Transparent: Mutual funds expose the portfolios in the portfolio once every month, but with small cases, one can view the stocks in their portfolio anytime they want.
Dividend Income: In a Small case, the dividends are directly deposited into the individual’s bank account, whereas in Mutual Funds, the dividends are reinvested/added to your investments.
Ownership: One can remove/add stocks from their portfolio in a Small case, but in Mutual Funds, this only can be done by the fund manager.
Lock-in Period: Some Mutual Funds during this period have a lock-in period; one cannot exit their investments. But in the case of a Small case, one can exit the investment anytime the individual want.
Founders of Small Case: Vasanth Kamath, the founder of small cases, wants the consumer to make investing as easy as booking a cab.
The Bengaluru-based startup was established in 2015 by IIT Kharagpur graduates Vasanth Kamath, Rohan Gupta and Anugrah Shrivastava. The small case started introducing a new generation of investors to the Indian equity markets using technology.
They received funding from HDFC Bank(in Dec 2020), DSP Group, Blume Ventures and Sequoia Capital and many others.
The Small Case Team States
The founders are on purpose to change how the people of India invest. The small case is a trusted financial ecosystem made of the Fintech company building together with investors, brokers, advisors, and other market participants. From personal investors to big AMCs, their products are used every day across various markets of India’s capital.
Pros of Small Case
Investments are strategy-based.
One doesn’t have to invest efforts in the analysis of a particular stock. One Get a stock basket.
One can do SIP.
Re-balance of Portfolio.
Cons of Investing in Small Case
The small case is PMS (Portfolio Management Services) of every poor man where the minimum size of a ticket is Rs 50 lakh.
Compared to other modes of investments, various equities like ETFs, Index Funds, Mutual Funds, etc., the Total Investment amount per small case is very high. For example, investing in a small case of default Dividend Aristrocat requires Rs 43,000. At the same time, a person can invest with Rs 500 in a mutual fund. Few Small cases are also available for less than Rs 5000.
All stocks are bought at the same time in a small case, irrespective of the current price. Typically purchasing a stock gives more returns at a lower price.
NO clear idea whether the stocks involved based on the rationale behind the strategy utilised and the research team involved was correct. (One must blindly believe in a sector/idea/strategy relying on the research team expertise of small cases which can go wrong).
NO obvious idea on the RISK metric associated with a small case.
NO proven track account of the past.
NO assistance to re-balance all of an individual’s small case portfolios at once. (one may happen to buy and sell the same stocks in different small cases incurring a loss as an intraday trader. Also, the tax liability, as well as re-balancing, creates churn.)
Why Should One Invest?
One needs to have a long-term view towards investing if they want to put their money in small cases. “Most small cases may not perform as expected in the short run but are designed as long-term investment products. The Investor should consider alternatives if they don’t have a long-term horizon.
However, since the concept of fractional shares does not exist in India, there may not be a minimum ticket price. This may sometimes begin to large minimum investment amounts in instances where stocks like Eicher Motors Ltd or Maruti Suzuki India Ltd [which, as of May 8, trade at a high share price of ₹20,350 and ₹6,650, respectively] are involved in the small case. Small cases as a concept only for well-informed investors consider good. Penetration of Equity in our country is shallow, and in broad conservative products like a mutual fund, the common person still doesn’t seem to participate.
However, as the re-balancing is done by research analysts who are Sebi-licensed for small readymade cases, prior market knowledge is not a pre-requisite. Anyway, the platform itself does not employ any financial advisors, but some amount of handholding may be required.