Investing in smallcase 🤑₹

Smallcase is an investment idea in the Indian equity market – to put it simply, a combination of the mutual fund concept and a stock systematic investment plan (sip). I have been doing both separately for sometime and now will try the smallcase way.

As I mentioned in the prior post on smallcase, the investors buy a portfolio of stocks and ETFs based on certain themes (like selecting a mutual fund). The major difference between a small case and a MF is that the stocks bought through smallcase portfolio are directly credited to the investors demat account unlike in a MF where you get units of the fund. The other difference being unlike a mutual fund, to invest in smallcase, you need to have a demat account and a trading account.

smallcase website,
smallcase website,

Getting started

Smallcase provides you the option of opening a new demat account and trading account  or you can go through your own broker, provided they are onboard with them – there are 7 brokers listed on their website now; ICICI Direct is yet to be on board, but is on the way.

There are two ways of doing this – [1] Login to your broker from the smallcase website and they have a subset of smallcases they have chosen for their customers. If your preferred smallcase is among them, proceed with the investment.

[2] Else, click on the Discover tab on the main smallcase website and select the smallcase you want to invest in. It may or maynot be in your broker’s chosen subset; needless, it will prompt a login through your broker and you can proceed with the investment.

Choosing your theme

This can be a bit overwhelming or very easy, if you know what you are looking for; just like choosing a mutual fund. The mutual funds mention their investment rationale, similarly at smallcase there are many flavours or themes to choose from. The titles of the smallcase baskets are cheeky and a self explanatory.

Consider for example, if you are bullish on India as a tourism destination🏝 you have the Incredible India smallcase basket of stocks. If you are bullish on the electric vehicle bandwagon🚗 – they have a smallcase called Electric Mobility.

Tried of companies defaulting on the debt payments? – there is the Zero Debt smallcase. There are smallcases with themes like Bargain Buys with a value focus or growth stocks in a smallcase called Propelling Growth or cashing on the rural India, there is Rising Rural Demand smallcase. User friendly names !! 😆And this is only scratching the surface.

My choice of theme

The major attraction of smallcase is that you get the stocks in your demat account, hence you are a direct shareholder of the company; which means you get the dual equity benefits of capital appreciation and dividends. 

And so with the added benefit of receiving dividends from my smallcase investments, as my first choice, I am going to choose a dividend theme.

I see 7 search results for dividends....what do I choose? For each smallcase, I can see the CAGR (compound annual growth rate) and the minimum amount to invest, but to see the individual stocks that comprise each smallcase, I need to login via my broker.

Dividend based themes from smallcase
Dividend based themes from smallcase

On the other hand I am also tempted to go with a value theme. Currently everyone is predicting doom and gloom for the economy and in bad economic times (and coming out of it) value stocks tend to outperform growth stocks.

Value themes from smallcase
Value themes from smallcase

The two smallcases, I liked are Dividend Aristocrats and Dividend Stars; between the two, I will go with Dividend Stars. Dividend Aristocrats has large cap and mid cap companies that have been consistently increasing dividends for the last 10 years. Dividend Stars has mid cap companies, mandating a divided yield of 3% over the past 10 years.  But its a smallcase marked as HIGH RISK.

Among the value investing choices, I will go with the Magic Formula smallcase, again marked as HIGH RISK.

The Magic Formula is a concept by an American investor names Joel Greenblatt. The smallcase focuses on high ROCE (return on capital employed) companies; but with lower valuations.

Having decided on the smallcases, I can login to my broker a buy the smallcases. They can be either a one time purchase or you can set up an SIP for the smallcase. The minimum SIP amount is Rs. 5000/-. A few clicks are you are done.

Purchasing stocks is easy and now let’s see their return in time to come. Both the smallcases are marked as HIGH RISK (be aware!!). Please do not consider this as a recommendation.

Once again…Please do not forget to do your due diligence before any investments (equity investments are subject to market risks).

Till next post, take care !!
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