Mutual Funds v/s smallcase – Showdown

Harsh Jain
September 2, 2022
mutual funds vs smallcase
Share on facebook
Share on twitter
Share on linkedin
Share on whatsapp
Share on facebook
Share on twitter
Share on linkedin
Share on whatsapp

The recent rise of new-age investment platforms has helped Indians double down on wealth management.

Investors have grown conscious of how their hard-earned cash is being invested and managed.

A gradual change in the pattern of investing has taken place recently from investors giving away total control of their assets to fund managers, to evolving into semi-DIY investors by investing through platforms like smallcase.

Why though?

Coming-of-age platforms gained popularity by picking out and killing specific anomalies with the products available in the market right now.

Will the new wave of investment tools, be able to sweep out old but cemented legacy products like mutual funds?

What is a Mutual fund?

A mutual fund is an investment tool that collects money from investors and invests it in equity, debt, bonds, and other assets. Fund managers working under an Asset Management Company (AMC) take the job of analyzing, picking, and investing in different asset classes.

What is a smallcase?

This is what smallcase proposes itself as ‘A smallcase is a basket of stocks that reflects an idea’. To give some more structure to it, it is a group of stocks or ETFs put together by SEBI Registered Investment Advisors that together track or point towards a single strategy, theme, or use case.

Want to invest in the recent innovation in the electric automobile sector? There are smallcases comprising stocks tracking that particular sector.

Let’s see how both of these investment options compare:

mutul fund vs smallcase showdown

 Smallcase V/S Mutual funds

a. Control

When investing in a mutual fund, your money is invested in securities that don’t land directly in your demat account – you are instead allocated units of that mutual fund. This is different from a smallcase investment as the portfolio stocks are directly debited/credited in your demat Account giving you total control to rebalance or disinvest whenever you want without the intervention of the manager.

b. Investment size

For smallcase to provide you with the ability to control your investments from your demat account, it cannot allow you to invest in stocks in fractions. To invest in a smallcase with 10 stocks or ETFs you need to buy at least 1 share of each of these 10 stocks thereby increasing the overall amount you need to start investing. In mutual funds, you can start with as low as Rs.100 or Rs.500, reducing the overall friction for low-ticket-sized retail investors.

c. Fees

CostsmallcaseMutual Funds
TaxationEvery time the stock is bought/sold, you will be subject to short-term/long-term capital gains taxOnly at the time of selling your MF units
Brokerage chargesEvery time the stock is bought/soldNo
Exit loadNoApplicable in some case
Fund manager chargesIn the form of a subscription chargeIn the form of an expense ratio 

d. Volatility

Mutual fund managers take full responsibility for managing and rebalancing your stocks in response to how the markets are performing. With smallcase, rebalancing takes place only within the specified time restricting its ability to instantly react to the changes in the market.

e. Diversification

As smallcases focus on investing your money in an idea, it restricts themselves from diversifying in a wide range of stocks, which is not the case with Mutual Funds which have the liberty to diversify in as many stocks as they want (except index and sectoral/thematic funds)

What do the Markets suggest?

The market works always in the favour of the investor who understands how to mitigate risks.

As said before, smallcase has very less room for you to diversify, unlike mutual funds where fund managers take full control and responsibility. Diversification is one of the major tools to reduce the risks of your portfolio without affecting the investment goals you want to achieve.

What should I choose? 

Mutual funds are for you if:

  • want to invest in well-regulated investment products
  • do not like to monitor your portfolio actively frequently
  • cannot bear the frequent trading/rebalancing costs

Smallcase is for you if:

  • you want complete control over your investments
  • have the time and expertise to manage your portfolio however you want
  • are willing to bear the frequent trading/rebalancing costs associated with it (check the cost section above)


Q: Can we start a SIP with a smallcase?

A: Yes, you can start a SIP with smallcase but the minimum investment will usually be on the higher side as compared to Mutual Funds as you have to buy at least 1 stock of each of the stocks in the group of stocks and not in fractions.

Q: Do we have a lock-in period for mutual funds?

A: ELSS mutual funds have a lock-in period of 3 years and except that no other mutual fund has a lock-in period. smallcase doesn’t have a lock-in period in any type or form.

Q: Do we have an exit load on the smallcase?

A. No, smallcase credits your shares in your Demat account directly, hence, selling a smallcase is basically you selling stocks bought from the list of the smallcase.

Q: Who manages a smallcase?

A: smallcases are managed by SEBI-licensed Registered Investment Advisers (RIAs)

Risk Assessment Test