How to build a diversified portfolio using 2–3 smallcases (simple allocation rules)

Monday, Feb 9, 2026

The issue at the heart of most Indian investors is not paucity of opportunity today. It is lack of clarity.

You check an investing app and are presented with hundreds of stocks, dozens of themes, momentum strategies, sectoral bets and expert opinions of very different directions. You would rather make a sensible investment, keep making the same investment over the long term, and you would not rather turn into a full-time market analyst.

This is the very place that smallcase investment belongs.

Smallcases enable you to invest in ideas but not in individual stocks, and are professionally managed and with open-minded rules. However, with the increased use of smallcases by investors, a new question does come up:

Is it enough to invest in one smallcase only, or should I create a portfolio of several smallcases?

A well-organized 23smallcase portfolio is the solution to most investors. This blog will discuss the process of creating one by the use of simple allocation rules, less overlap, and long-term wealth creation mind.

The reason why diversification is structural not numerical

The assumption that most investors make is that diversification is associated with the ownership of a large number of stocks. As a matter of fact, trying to own 25 stocks in one sector or strategy is not diversification, but rather it is concentration in disguise.

Diversification is actually achieved through diversification of different drivers of returns. When applied to smallcase investing, it is translating this into a blend of strategies which act in different ways during market cycles.

Indicatively, a dividend oriented portfolio will respond differently to volatility, compared to a smallcap growth portfolio. The action of an index-based smart beta strategy is unlike a thematic tracker. With a combination, these differences eliminate the emotional stress and enhance long-term results.

Hence investing in 2-3 complementary smallcases can be more effective than investing in the best smallcase to invest in each year.

Why 2–3 Smallcases Work Best for Most Investors

There is a psychological reason, and a practical one, behind the 2–3 smallcase approach.

With just one smallcase, investors often feel anxious during drawdowns because everything depends on a single strategy. With too many smallcases, portfolios become cluttered, overlapping, and difficult to monitor. Decision fatigue sets in, and conviction weakens.

Two or three smallcases hit the sweet spot. They are enough to diversify risk, but few enough to understand clearly. This structure aligns well with the mindset of Indian investors aged 25–55, professionals, entrepreneurs, and business owners who want to stay invested without constant monitoring.

More importantly, it encourages long-term holding, which is where real compounding happens

The Three Roles Every Diversified Smallcase Portfolio Needs

Every strong portfolio, regardless of size, serves three fundamental purposes.

The first is stability. This part of the portfolio reduces volatility and protects capital during uncertain phases. It helps investors stay invested when during market corrections. 

The second role is growth. This is where meaningful wealth creation happens over time. Growth-oriented smallcases typically focus on quality businesses, earnings expansion, or smallcap compounding.

The third role is opportunity capture. These are thematic or sectoral ideas that benefit from specific trends, such as manufacturing growth, ESG adoption, or sector upcycles.

A Simple Two-Smallcase Portfolio for Balanced Investors

For many first-time and mid-career investors, a two-smallcase portfolio is more than sufficient.

In this structure, around 60–70% of capital is allocated to a stable core, while 30–40% is allocated to a growth-oriented strategy.

For example, a conservative or moderate investor could combine Index Advantage Smart Beta or The 100 Year Portfolio Asset Allocation as the core, with High Quality Right Price Fundamental or DiviGrowth Capital Dividend Model as the growth component.

A Three-Smallcase Portfolio for Growth-Focused Investors

Investors with higher risk tolerance and longer time horizons often prefer a three-smallcase portfolio, where each smallcase has a clearly defined role.

Typically, 40% is allocated to stability, 40% to growth, and 20% to opportunity or thematic exposure.

A practical example using Green Portfolio offerings could include Index Advantage Smart Beta as the stabilizer, Smallcap Compounders Fundamental as the growth engine, and Auto Advantage Tracker or the ESG Theme smallcase as the opportunity component.

This structure allows participation in long-term trends while ensuring the portfolio does not become overly aggressive. It is especially suitable for entrepreneurs, business owners, and professionals in their peak earning years.

Conservative Portfolios and the Role of Dividends

For investors approaching retirement or prioritizing capital protection, diversification looks different.

Here, the focus shifts from maximizing returns to minimizing regret.

A conservative two-smallcase portfolio could allocate the majority of capital to The 100 Year Portfolio, designed for low volatility and stability, with a smaller allocation to DiviGrowth Capital Dividend Model for income and steady appreciation.

Understanding Overlap Without Fear

One of the most common concerns in multi-smallcase investing is overlap.

Overlap is not inherently bad. Some overlap is natural, especially in fundamentally strong large-cap stocks. What matters is whether the strategy logic overlaps, not just the stock names.

If two smallcases hold similar stocks for different reasons, such as one for dividends and another for index representation, that overlap is usually acceptable. Problems arise only when multiple smallcases chase the same theme with the same risk profile.

Green Portfolio smallcases are designed with distinct philosophies, making them suitable for combination without excessive redundancy.

Smallcase Minimum Investment and Capital Planning

Another advantage of smallcase investing is flexible entry.

With minimum investments ranging from under ₹10,000 to higher allocations for advanced strategies, investors can scale gradually. New investors may start with one or two smallcases and add a third as confidence and capital grow.

Costs, Charges, and the Bigger Picture

Yes, smallcase investment charges exist. But the real cost in investing is not fees, it is emotional decision-making driven by fear or overconfidence.

A structured portfolio of 2–3 well-chosen smallcases reduces unnecessary churn, improves discipline, and increases the likelihood of staying invested through cycles.

Conclusion: Simplicity Is a Strategy

You don’t need dozens of ideas to build wealth. You need a structure that fits your life stage, risk comfort, and temperament.

A thoughtfully constructed 2–3 smallcase portfolio offers professional strategy, personal control, and emotional clarity, all essential ingredients for long-term success.

At Green Portfolio, each smallcase is designed as a building block, so you can combine them intelligently and let compounding do the heavy lifting.