Difference Between Mutual Funds vs Smallcase Explained

A diversified portfolio benefits investors by minimizing the risk of loss, assuring increased returns, and safeguarding against adverse market conditions. Investors can invest in a wide range of stocks based on sectors and market cap (small-cap, large-cap, and mid-cap). However, individuals can also invest in a new investment instrument known as smallcase funds. Budding investors may confuse it with mutual funds.

Read on to learn more about the difference between smallcase and mutual funds.

Smallcases are portfolios that include stocks or exchange-traded funds (ETFs) that are professionally customized and mirror an investment plan, theme, or idea.

Smallcases combine two skills, namely finance and technology, and offer a new and unique platform for investing. On this platform, investors can design their investment portfolio model or select from existing models generated and managed by the Securities and Exchange Board of India (SEBI) -registered entities.

Smallcase Technologies offers Smallcase funds where brokers, investment advisors, and asset management companies conduct extensive research so that they can create diversified portfolios for investors.

How Does a Smallcase Work?

To invest in Smallcases, investors must open a brokerage account. As investment in small cases includes stocks of different companies, investors must have a trading and Demat account.

Here, investors can choose to invest in stocks, securities, ETFs, etc., in existing smallcase options created by SEBI-registered entities, or they can customize the smallcase model as per investment strategy or theme of preference.

Currently, there are 12 of India’s largest brokers that offer small cases. Investors can log in with a broker’s ID or create their own account. Next, they have to choose a suitable theme. At this stage, they have to place an order for all stocks, including those available in the basket through brokers. After a successful transaction, the shares will be transferred to the investor’s Demat account.

In the case of smallcase, there is no fixed lock-in period for stocks. Investors can hold or sell these stocks as per requirement.

How Do Mutual Funds Work?

• Pooling of Funds: Investors buy shares in a mutual fund, contributing to a collective pool of money.
• Professional Management: Fund managers use the pooled funds to buy a diversified mix of securities, aiming to achieve the fund's investment objectives.
• Diversification: By investing in a variety of assets, mutual funds spread risk across different investments, reducing the impact of any single security's poor performance.
• Net Asset Value (NAV): The value of a mutual fund is determined by its NAV, which is calculated by dividing the total value of the fund's assets by the number of outstanding shares.
• Returns: Investors earn returns through dividends, interest, and capital gains from the fund's investments. These returns can be reinvested or paid out to investors.

Both smallcases and mutual funds focus on wealth creation for investors. Investment in smallcase and mutual funds has both pros and cons.

In small cases, investors must have enough knowledge regarding market conditions. Additionally, they have to keep track of the changes and design exit strategies accordingly. Investors of such funds have to decide their smallcase based on investment objectives and goals.

On the other hand, mutual fund investors need not worry about these as fund managers handle all these matters. Also, investors have to pay higher costs to invest in the mutual fund than in small cases.

Deciding between smallcase and mutual funds wholly depends on the investor’s risk tolerance levels, investment horizon, and return expectancy. Read the details carefully to make an informed investment decision.

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