Smallcase Vs Mutual Funds - Everything You Need to Know

Once you decide to build wealth with the equities, you encounter various choices.

Whether to invest through direct equity?

Whether to invest through Mutual funds?

Whether to invest through Smallcase? Etc.

A retail investor should avoid direct equity unless he has a good understanding & knowledge of the equity market and can analyze businesses, predict long-term trends, and spot opportunities, etc. The objective of investing in direct equity is to beat overall market returns and there are very few who have been able to do this successfully over a long period.

Smallcase Vs Mutual Funds

Hence the better choice for retail investors is to invest in the portfolios managed by market experts. A retail investor can either invest through Mutual Funds or Smallcase. The smallcase is a relatively new product but has gained popularity due to certain features missing in the existing products. In this article, we shall be discussing the difference between smallcase and mutual fund.

Mutual Fund Small case
Trading & Demat Account Investors do not require a Trading & Demat account for mutual fund investments The Trading & Demat account is required in case of smallcase investment.
Constitution of Investment Portfolio Investors get units of mutual funds which are backed by stocks of companies. The stocks are not held in the Demat account of the investor. The investors have no control over the sale and purchase of shares in their mutual fund portfolio and the same is managed by the fund manager on behalf of the investors. Investors get shares of companies directly in their Demat accounts. The investors may also customize the smallcase and do changes in the portfolio. Further, the investor may choose to do periodic changes as advised by an investment professional.
Diversification Mutual funds invest in a large number of companies depending upon the classification of the fund and offer more diversification in comparison to smallcase. The smallcases are built on specific ideas, sectors, themes, etc. like Green Energy, affordable housing, electric mobility, etc which restricts the diversification. These are created and managed by SEBI registered investment advisors after using various techniques. For example, if an investor is bullish on electric vehicle space, he may invest in a smallcase of Electric mobility created by an investment professional. Further, the investor may choose to do periodic changes in the smallcase on the advice of these professionals.
Minimum Investment In mutual funds, one can start investing with as low as Rs. 100 as the units of mutual funds may be allotted in fractions as well. For example, if a mutual fund is quoting at NAV of 200, by investing Rs. 100 an investor may get 0.5 units of the mutual fund. The minimum investment depends upon the stocks in a smallcase and is generally more than Rs. 10000. For example, a smallcase containing 10 companies all quoting at more than Rs. 1000 shall require a minimum investment of more than Rs. 10000.
Expense Ratio The expense ratio of mutual funds varies from 0.10% of AUM to 2.00% of AUM depending upon the fund. The expense ratio of active mutual funds (Direct) mostly ranges from 0.50% to 1.00%. The cost structure of smallcase works differently from mutual funds. A smallcase may be open to the public in which the investor will have to pay brokerage or it may be available on a subscription basis in which the investor needs to pay additional charges to subscribe.
Exit Load The mutual funds charge exit loads of 1.00%-2.00% in case the investment is redeemed before a particular tenure, generally one year. The redemption in the case of smallcase does not attract any exit loads.
Risk The mutual funds carry less risk than smallcase due to more diversification and as the portfolio are completely managed by fund managers. The smallcase investment carries a high risk due to a concentrated portfolio and the investor may take wrong decisions depending on news flow.
Taxation The equity mutual funds investment attracts a short-term capital gains tax of 15% in case an investment is redeemed within one year and a long-term capital gain tax of 10% for gains above Rs. 1.00 lacs per year if an investment is redeemed after one year. The taxation is the same for smallcase investments as for mutual fund investments.

Mutual Funds Vs Smallcase – Which is the better option?

The smallcase investment is positioned somewhere between direct equity investment and Mutual Fund investment. They work on a similar concept of a basket of stocks. Smallcase investment offers greater control over investment, larger transparency, and lower charges However, in smallcase investment; an investor needs to have better knowledge of equity markets. The smallcase investment also requires higher capital and carries higher risk. An investor who wants to invest directly in equities but does not have time to analyze the entire group of stocks may consider investing through smallcases. The investor should invest in smallcases of experienced professionals with a good track record.

The mutual funds, however, offer less control over the investment along with lower risk. Investors with a conservative or moderate risk profile should avoid smallcase investments and invest through mutual funds depending upon their goals. Investors with an aggressive risk profile and good market knowledge may invest part of their portfolio in smallcase for the possibility of higher returns.

You may also like


We have been receiving various queries from our blog readers in respect of smallcase investing. We have tried to answer these in the following paras.

Can I invest in smallcase on upstox, HDFC, or ICICI Direct?

Yes, you can invest in upstox smallcase. Further the smallcase investing is also offered by HDFC Securities and ICICI Direct. The link to the websites is given under “Sources”.

What is all weather investing smallcase?

An all weather investing smallcase strategy is to invest in various asset classes i.e. equity, gold & debt. The strategy reduces the volatility of investment and ensures that the investment is protected in times of market downturn. The expected return from smallcase all weather investing is less than the returns from equity smallcases. 

What is Dividend aristocrats smallcase?

Dividend aristocrats smallcase consist of high dividend paying companies. This smallcase is suitable for conservative equity investors. 

What are smallcase rebalance charges?

Smallcase rebalance is the periodic updation in smallcase as per an investment professional. It may involve selling/buying shares of new or existing companies in the smallcase. The rebalancing is a simple act and does not require much effort. It can be done with a few clicks. The advisors charge for allowing rebalancing of smallcase and the charges vary for different stock brokers and also for different smallcases.

What is the best electric mobility smallcase/Electric vehicle smallcase?

We are receiving this query from many blog readers due to the government’s thrust on electric mobility. The electric mobility smallcase/electric vehicle smallcase is offered by various investment advisors, and stock brokers. However, this carries a high risk as the industry is still at the nascent stage. You shall consult your financial advisor who may better provide investment advice depending on your risk profile.

Disclaimer: This article is for informative purposes. The investors shall consult their financial advisors before making investment decisions.

Sources/Links:  (Link for upstox smallcase) (HDFC Smallcase) (ICICI Direct smallcase) (Smallcase)

Post a Comment