India recorded an exponential surge in individual investors during the fiscal year 2021. As per the reports, 14.2 million demat accounts were opened in FY21 compared to 4.3 million accounts in the preceding three financial years. But, these investors have very limited knowledge about how to choose the portfolios.
Smallcase, a fintech startup, has come up with a solution for such beginners. The firm has introduced readymade portfolios that can be chosen by these investors.
How Smallcase Works?
Founded in 2015, fintech startup Smallcase got the first big boost in 2019 when SEBI introduced a hike in the minimum investment amount for portfolio management services (PMS) from ₹25 lakh to ₹50 lakh. Since the Sebi decision did not apply to Smallcase’s pre-packaged portfolios, the Bengaluru-based fintech firm benefited a lot.
Later, people rushed to invest in the stock market without prior knowledge of the industry due to a nationwide lockdown in 2021. These investors found Smallcase’s readymade portfolios interesting to invest instead of selecting the random portfolios.
Vasanth Kamath, founder, and CEO of Smallcase claimed that the firm recorded a 3x surge from 9 lakh in March 2020 to 28 lakh in March 2021. The company further added that its platform processed Rs 8000 crore investment in FY21.
Smallcase creates such portfolios with the help of Sebi-registered investment advisers (RIAs) and research analysts (RAs). These experts offer their services to individual investors on the Smallcase platform. Currently, the fintech firm has signed up 100+ advisers, including Deepak Shenoy of Capitalmind and Vikas Gupta of Omniscience Capital.
Pros and Cons of Readymade Portfolios
Sebi-approved RIAs and RAs have made individual investors’ life easy by providing such portfolios. Due to their proper license and knowledgeable background, investors have minimal risk while choosing their recommended portfolios. Smallcase’s subsidiary Windmill Capital is also a Sebi licensed firm that is listed on the startup’s platform. The majority of investors have chosen Windmill portfolios to do the investment.
Another advantage of offered smallcases or pre-packaged portfolios is that the service is currently free for investors. That means a user can save up to 2.5% brokerage charges that are charged by the financial experts to provide such services.
But, Smallcases have some disadvantages as well. Due to the small investment by a huge number of users, it is difficult for RAs to provide personalized service to all. Customers are also facing transparency issues in past returns of portfolios. The startup has not yet clarified whether the return includes RAs and RIAs fee or not.
The portfolios can be quite concentrated. Sebi rules on diversification—mandatory for mutual funds(MFs)—do not apply here.
Overall, buying readymade portfolios is a convenient option for beginners. After having a certain level of experience, a user can start choosing its portfolio based on market research. Finally, it depends on what suits you most.
