What is smallcase?
Smallcase is a cutting-edge investment platform that offers expert-curated stock portfolios. You can own a basket of stocks that are aligned with a specific strategy with just a few clicks. These baskets typically contain 10-15 stocks chosen by Registered Investment Advisors or Portfolio Managers. You can gain access to them by paying a flat fee or a percentage-based fee. New investors may be unsure whether or not to invest with smallcase. To make an informed decision, let us first understand its benefits and drawbacks.
The days of stacks of paperwork and in-person meetings with your investment advisors are long gone. You can own the equities recommended by your advisor with a few mouse clicks. RIA websites are notorious for their poor user interface and difficult to use UX
Additionally, everything is automate with smallcase, and there is no need to share your demat account password as usually happens with advisors
Better fee structure
Mutual funds and portfolio managers will charge you percentage-based fees if you want to invest in a similar manner with this ease. This 2-3% fee may appear insignificant, but it has a detrimental effect on our corpus as compounding occurs over time. The majority of smallcases are available for a flat monthly fee.
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Own your own stocks
Unlike a mutual fund, where stocks are held in an unknown investment vehicle, you keep stocks in your own demat account with smallcase. This provides an investor with more control over their investments.
It also eliminates the possibility of fraud or misrepresentation. Investors also have more say over portfolio changes, as they can choose to accept or reject rebalances.
Smallcases are usually themed and limited to 10-15 stocks. Some argue that this can lead to overly concentrated portfolios. Concentration risk occurs when a few stocks determine the fate of your entire portfolio.
Larger Ticket Size
Because you buy each stock separately to make up a smallcase, the ticket size for this can range between Rs. 10-15K. This is significantly higher than mutual funds, which start at Rs. 100 per unit.
When you rebalance a smallcase, you will inevitably buy and sell stocks. Because you directly own these stocks in your demat account, you will be subject to capital gains tax. These could be long term or short term capital gains tax depending on the tenure of ownership. This does not happen with mutual funds because you do not directly own the stocks but rather units.