Ever since smallcase entered the scene, they are constantly being compared to pre-existing forms of equity investment options - direct investments, PMS, and mutual funds. Let’s put this to rest and help clear things up, once and for all!
Smallcase
To put it simply, a smallcase is a basket of stocks and Exchange Traded Funds (ETFs), clubbed together in various combinations by various fund managers, for us to invest in.
All you need to do is log in using a de-mat account (check out our blog here to see whether your account qualifies), and you will be presented with options, ranging from various interesting themes, industries, and risk profiles.
Mutual Fund
A mutual fund is a pool of money collected from many investors to invest in securities like stocks, bonds and other assets. Professional fund managers, vetted and hired by mutual fund houses or Asset Management Companies (AMCs) are responsible for picking the constituents of the fund and allocating capital.
Compare and Contrast
FACTOR | SMALLCASE | MUTUAL FUND |
|---|---|---|
Lock-in | No lock-in | Can vary based on the type of fund |
Cost | Fixed or variable, and doesn’t have a specific range | Capped at 2.5% by SEBI |
Returns | No guaranteed returns but have the potential to outperform mutual funds | Stable (8-12% p.a.) |
Risk | More risk as smallcases usually follow a theme/idea that restricts them, hence lower diversification | Lesser risk as no such restriction and diversification is done optimally |
Ownership | If you buy a smallcase, you have ownership rights over each stock in it | If you buy units of a mutual fund, you don't own the stocks that are in the actual fund |
Transparency | More transparent as smallcases allow you to view constituents at any given time | Less transparent as mutual funds have control over what goes in the fund and release that info at a fixed time |
Conclusion
While smallcases have accessibility, ease, affordability and control on their side, mutual funds have stable returns, lower risk and overall reliability due to being tested by the markets for years. Both forms of equity investments are suitable in combination, not contention!
If you’re curious to see how these smallcases work (especially the affordable ones), why don’t you check our smallcases out? We have 6 different themes and all-weather portfolios - making sure there is something for everyone. Click on the button below to launch!
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