Earlier, the best option for investing Rs. 1 lakh without actively purchasing stocks was a mutual fund. They charged you a substantial expense ratio of 2-3%. That meant you ended up paying three thousand rupees in just management fees out of your invested amount. Not to mention the entry and exit loads (percentage of the fee levied on the purchase/sale of a mutual fund), as well as transaction fees, which can further reduce your invested amount.
Enter smallcases, a no-hassle investing option that does not have expense ratios or hidden fees. Investing in a smallcase is less expensive than other alternatives. Take Rupeeting equity portfolios for instance which charge just a 1.75% (plus GST) subscription fee to beat the markets. However, knowing the fees involved is always beneficial for better financial planning. Let’s take a look.
Subscription fee
Smallcase charges a subscription fee to access the portfolio details, similar to how Netflix charges a monthly fee to access the content. This fee is paid to the smallcase manager directly. The manager charges this fee to conduct the research and in exchange provides the customer with access to the stocks/ETFs. Subscription plans vary for different managers & smallcases.
They currently come in two varieties:
Assets Under Management (AUM) based - The manager may charge a small fee upfront - a monthly fee equal to a percentage of your annual net worth is charged, along with GST. The percentage varies by smallcase and is determined by the manager.
Flat-fee basis - The manager charges a set fee, which is available in monthly, quarterly, half-yearly, and annual plans. This fee must be paid before investing in the smallcase. It is available in monthly plans.
Transaction Charges
When you purchase stocks through smallcase, the transaction is handled by your broker. Transaction fees are the fees you pay the broker to have your order executed. Brokerage and regulatory fees may be included. The specifics can be found on the fee page of your smallcase broker platform. These charges typically have a well-defined structure that is consistent across the board.
Broker | Charges | Frequency |
Zerodha | Rs.100 + GST | One Time |
Upstox | Rs.200 + GST | One Time |
5Paise | Rs.10 | Per Stock |
ICICI Direct | Rs.100 + GST | One Time |
HDFC Securities | No Charges | - |
Kotak | Rs.100 + GST | One Time |
Edelweiss | No Charges | - |
Groww | Rs.100 + GST | One Time |
Calculate Costs
Compiling all costs can be time-consuming. Subscription fees were always clear and simple to understand. However, it was up to the user to calculate what costs an investment would incur over time and how it would affect the performance of that specific smallcase.
A few factors must be considered when calculating the total cost of investing in smallcase.
Determine the total investment required (including subscription fees and transaction charges)
Examine overall costs and the various components of transaction charges
Determine the slippage incurred as a result of the rebalance timing chosen
Examine the annualised cost-adjusted returns of a smallcase
Smallcase Cost Calculator
It is considered best practice to calculate costs and returns before making an investment decision. Smallcase has a cost calculator feature that provides a more realistic picture of a smallcase's cost-adjusted returns. It also aids in the comparison of two smallcases. It gives you more freedom to change the investment amount, the brokerage charged, and the rebalance execution timings. In smallcase, this option is located below the historical returns chart.
Assume you are considering investing 1 Lakh in XYZ smallcase and want to know how much you would have made after deducting the costs. Click on “Check cost-adjusted performance” on the smallcase portfolios page.
This provides you with a comprehensive view of the returns you would have made while accounting for all possible charges. In this example, your portfolio increased in value by ~40,000, but you made ~32,000 after deducting all costs.
The cost calculator significantly improves the transparency of any smallcase you're considering for your next investment. It simplifies charges, which improves your overall investing experience.
Head over to our collection of Rupeeting's smallcases and choose from a wide range of strategies that make you money!