How are smallcases different from Mutual funds
Monday, Aug 22, 2022
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Small case stocks are a new way of investing intelligently in equity markets and diversifying the portfolio. Let's understand in detail what exactly small cases are :
It is a bunch of stocks picked up and created based on a theme or idea. The strategy or theme may relate to an expectation of a particular sector going up in the economy e.g. Automobility sector and market gains from that sector.
How are these collated?
Stocksare put in the same group generally up to 50 stocks based on same theme or strategy Let's understand better with the help of two examples:
1)Suppose the theme is housing development - which are necessary for building a house.
2)Suppose the idea is (Zero - Debt policy ) - Stocks of those companies which are debt free.
Only those stocks which are listed on NSE can be a part of small case bucket. These are pre-researched portfolios available to investors which can be further modified by adding or removing some stocks from the bucket as per the risk consideration of the investors.
Who can benefit from small case investing?
Small case stocks are more useful for those investors - who know the market, those who are constantly researching the market and have upside expectations about a particular sector or theme but don't have the bandwidth to research in detail about every stock relating to the theme.
Mutual Fund versus small cases!
Till now mutual funds were considered to be a safer investment compared to direct invesment in the equity market, in case the person is not active in the market or doesn't have the requisite skills to research the market in detail.
Small cases seem to be similar to mutual funds in the first instance as both operate on a particular theme. But are they the same? Lets discuss them in detail.
1)Exercising control on the portfolio
Small case investors can control the stocks in the portfolio in a better way as they can sell the stocks at any time in case some particular stocks are going down and hold the remaining, Dividend is received direct linvestors'stors accounts, etc. As in small cases investor get ownership of stocks directly in demat account unlike mutual funds where investor get units based on NAV. In the case of mutual funds once an investor has selected a particular scheme they have very limited control over stocks.
2)Flexibility
Small cases do not have any lock-in period hence they are more flexible as compared to mutual funds. Mutual Funds have exits loads whereas small cases do not.
3)Transparency
Small cases are more transparent than mutual funds in a way that investors are aware where there funds are being parked. In mutual funds, once money has been pooled and invested, investors have limited information about the updates. The best part about the small case in the rebalance updates. Investors get regular updates on the companies being bought or sold.
4)Diversification
Small case investments offer less diversification compared to mutual funds as they are based on a particular theme or idea. It is more useful for those investors who are bullish on a particular sector.
These are key differences between mutual funds and small cases , both the alternatives have their own pros & cons but which one is better will differ for each investor according to risk appetite and skillset.
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