- There is no point in investing in Smallcase and Mutual Funds are Better.
- Investing in smallcase is beneficial only when we invest in Lakhs.
- There is no clarity on how much are the charges of Smallcase.
HOW MUTUAL FUND AND SMALLCASES WORKS?
We all know about Mutual Funds. Suppose there's an investor. He has a bank account and he wants to invest in a mutual fund, then in a mutual fund, there is the main fund manager. He is an expert who invests in further stocks. So here, a mutual fund account is opened for every investor in which that mutual fund unit comes. A De-mat account is not required here to invest in mutual funds. As an example, let's suppose this person invests Rs. 10,000, then Rs.10,000 will come out of his bank. This money will go to the mutual funds and further money will be put in many other stocks. How the money will be deposited? It will depend on the fund manager's expertise. When to buy, when to sell, This will be decided by the fund manager himself. Now, what will happen here is that NAV will be assigned. Let's say a NAV is Rs. 100 initially then hundred units will be assigned. these 100 units will come into the account of the mutual fund of the investor This is the simple working of mutual funds.
Let's suppose the same investor here also. He says- " I do not want to invest in mutual funds. I want to invest in a small case. Here also there will be a fund manager who will decide which stocks to invest in. It's a basket of stocks so in the case of smallcase, all these stocks, it will directly come into your De-Mat account. You need a Demat account to buy any stock. So this small case is a basket of stocks. It is the kind of advice of a fund manager. Similarly here is also a SEBI Registered Investment Advisor or SEBI registered research analyst is present. But we also have to work a little bit here. Because when you have put the money once in a mutual fund, It will decide on itself. But here in smallcase, you have to get involved a bit. because whenever you'll be asked for rebalancing What will happen here is that in every 6 or 3 months, whoever expert is here he'll advise you should buy something or sell something. At that time you have to take some action. But this action is very easy with just one button, your rebalancing is done. Here, suppose you invest Rs.10000 in the four stocks of smallcase, then these shares worth Rs.10000 will come directly inside your De-Mat account. This is the working of the small case in comparison to mutual funds.
WHAT IS DIFFERENCE BETWEEN SMALL CASE, MUTUAL FUNDS & STOCKS?
Let's see smallcase vs mutual funds vs stocks If we directly invest in stocks, So let's try to draw a comparison among them. First of all, if we talk about the returns, then let's say. we invest in stocks, then our return expectation is the highest If we rate on a scale of 10, then return expectations in stocks are 10/10. In smallcase, the expectations for returns is slightly less In mutual funds, the expectation of the returns is more lower as there is a lot of diversification. now talking of easiness How easy is it? For stocks, it is a bit difficult, that's why I have given 8 Marks because here you will have to do research and analysis which will take some time and effort. It becomes easy in smallcase. You can rely on one expertise of SEBI Registered Research Analysts or Investment Advisors. In the case of mutual funds, it is definitely very easy, that is why I have given 10/10 here because once you have given money, now the fund manager is doing everything himself. If we talk about control, then there is one hundred percent control in the stock, when we have to buy, when to sell, therefore 10/10 marks. In the case of smallcase also 10/10 marks. That's why small case becomes a very good product when we talk in comparison to mutual funds. When to buy, when to sell, we can decide on our own. Suppose you invested in a small case Whenever it comes for rebalancing, it is not necessary that you have to rebalance. You can also take your own decision. You can design your own smallcase. So we have 100% control here. Talking about mutual funds, we do not have control, we do not have any control over when the fund manager will buy and sell it, so here it becomes 8 marks. Talking about fees, fees is definitely less in stocks, that's why we have 10/10 marks. On the second number, if we talk about smallcase, it is 9 marks, the fee of mutual funds is a bit high. If we talk about time, it takes a little more time inside stocks, that's why I have given 7 marks. You have to be a little involved even in small cases that's why I have given 8 marks. Mutual fund scores are definitely high here, so here it becomes 10 marks. So if we do the total, although there is no special benefit of this total we should decide on the individual parameters only. The total is 45, 45, and 44. We have to see that which thing is needed, out of these parameters, which thing is important for us.
CHARGES CHARGED ON SMALLCASE & MUTUAL FUNDS COMPARED
Now if we talk about charges, In mutual funds on average, you have to pay a 1% pa management fee, But in small case, this cost can be saved. Especially when you have more than some amount of investment. Let's see the charges once, what are the charges of smallcase, first of all, we will talk about the transaction and De-mat charges. Here I took some assumptions, suppose if our investment amount is Rs. 50,000 So here I have entered Rs.50,000 and will share it with you. You can enter whatever investment amount you like here I have assumed 10 stocks here as an example, Suppose 10 stocks are being recommended inside a smallcase. And let's assume that within 2 years there's a 50% rise. That is 50% returns in 2 years. That means, if you see on an average, the annual return will be around 23-24%. So here if we see according to the timeline, Suppose you put Rs. 50000 here on Day 0, so I have taken the buy amount here. Let's assume that every 6 months there is a rebalancing, i.e it is being recommended to buy and sell some stocks by the expert or manager. So here I assumed the number of scripts was 10 So let's say 40% of the portfolio churns after 6 months. Although it is not necessary, I still took the higher side that how much will be the maximum cost to us in smallcase? So here, let's say you buy and sell stocks worth Rs 2000. Then after 12 months, churn comes inside 6 stocks, and your buy amount and sell amount becomes Rs. 2500 each so the total trading amount becomes 5000 Similarly, After 18 months there is a third rebalancing and an amount of Rs. 3000 is bought and sold in total 3 stocks. the total trading amount becomes Rs.6000. Finally, after 24 months, you decide that now I have to take the complete exit. Your total amount is now Rs. 75000. So here, your entire sale amount becomes a trading amount of Rs. 75,000. So what are the charges here? Look here, the first one is the transaction charge. Whenever you buy a small case, a transaction fee is there from which mainly the small case earns. That is Rs100 per smallcase plus 18% GST. So Rs.118 definitely goes out of pocket. But it is not that if there are too many stocks inside one small case, then it will cost more money. You have to pay this one time only. These are our ₹118. But here, Demat charges are also levied because all your stocks are coming in De-mat account So what are those charge? There is a brokerage charge here. Now, Zerodha or another discount broker, Angel broking all these have zero brokerage charge inside them. So here you can see zero brokerage. Here I took only zero's assumptions. Then there is STD, Securities Transaction Tax. This money goes to the government. It is around 0.1%. So here I have done my calculations according to these assumptions. The exchange transaction fee is around 0.00345%. I took all these current charges in today's date. then 18% GST is levied over the brokerage + exchange transaction charges. I have calculated that. Then stamp duty is levied. It's flat nowadays. It is 0.015%. Earlier it used to be state-wise. 1SEBI charges are 0.0001%. Then there are DP charges. Like we have a stock store in CDSL or NSDL, their charges when you sell any stocks at that time. Here you will see that when we buy stocks i.e. buy a smallcase, then your DP charges are not being charged But whenever you are rebalancing or finally selling the whole small case then your DP charges are being applied. you will see that other charges are not such a high amount. But if you will see the main charges, here transaction charges are becoming a small amount, and this is a small amount of DP charges. These are our main charges. So I calculated the total charges, If we invest an amount of 50000, then there are charges of ₹ 651 on it. if we calculate percentage-wise, then it is 1.3%. If we compare it with mutual funds, then there the average is 1% then there are no benefits on investing in a small case. Yes, your point is absolutely right but if we increase the investment amount a bit, Let's say Rs.80,000 then we have the total charges of 0.93% which is less than mutual funds now. so why not consider these as round-figure charges. If we invest more than Rs 1 lakhs, So we can roughly consider that small case charges will be less than mutual funds charges. Whenever our investment is above Rs. 1 lakhs, then the small case becomes a better product than the mutual fund when we talk about fees. But now along with this, subscription-based smallcases have also come. i.e. they are paid smallcase. Some smallcases are free, there you have to pay transactions and De-mat charges only. But how to justify the cost of these paid smallcases? for example, there's a subsidiary of smallcase, Windmill Capital Which is a manager of a smallcase. They run more than 40 small cases in which about 14 are paid. If we want to invest in them, in today's date we have to pay ₹ 6000 per year, So how is this cost justified? Because this amount becomes a bit high definitely. So basically, if we compare the returns of mutual funds, Let's say in one mutual fund, there's a return of 15%, and in a similar small case, we are getting 20% returns. Then you will only invest when these returns will be significantly high.BLet's assume you've paid the annual subscription of 6000 rs. You invested 2 Lakhs So here are the annual charges, as a % of our investment, So, 6000 of 2 Lakhs, as a per cent, becomes 3% So how much are the smallcase cost adjusted returns? I've also removed the cost of 3% in the 20% So, here comes the cost-adjusted return of 17% for the small case This is more than mutual funds i.e. more than 15%. So the Paid small case subscription fees will be justified if, that small case is giving significantly higher returns than mutual funds. Till here we have covered Small case's charges and their justification. Now we'll see the interface once. Here, what smallcase has done, whichever smallcase you are analyzing. The cost adjusted returns are also put in an interface. You can see the plans and benefits of Windmill capital by visiting here. Here we are seeing that ₹6000 is required for 12 months subscription. But a 15% discount is given for Asset Yogi subscribers. The link is given in the description below. Some, like all-weather investing, are free here. It's not a paid smallcase. Top 100 stocks, dividend aristocrats, equity, and gold are all free. As we can see, CANSLIM-Esque is a paid smallcase. If we want to invest here, it has a 5-year CAGR of 31.34%, which is significantly higher than mutual funds. You can check out other details too. Infact, we have already discussed all these details in the basics video so you can watch it. But this new feature, check cost adjusted performance, you can see if there's an Unadjusted final amount Let's say If someone has invested 1 lakh then the final amount will be Unadjusted Rs. 3,58,997 but after cost adjustment, it becomes Rs. 3,28,676. You can see the charges too by clicking on the “i” button. Only transaction and De-mat charges are visible but the charges for Paid subscriptions are not visible. We've already talked about them. If we are getting significantly high returns then only we want to buy it then only we want to pay 6000 rs. If I talk specifically about Windmill capital then here you get 13-14 paid small cases in 6000 rupees. There are many other small cases. It isn't necessary that you have to choose from windmill only You can make your own smallcase If you are liking any Expert's returns, Check their historical returns.
CONCLUSION
So to conclude, we can't clearly state that a mutual fund is a better product or the small case is the better one. It depends on our requirements, our personal profile. Some people, who have no time at all, will find mutual funds better. For some people who are quite enthusiastic about finance, smallcase is a very good product for them and slowly they develop their skills and start investing in stocks as well So it will depend on you only But if we talk about only the cost, then by mathematical calculations we have seen that if we invest more than 1 lakh then smallcase becomes better product than mutual funds because you have less cost over there. So I hope you must have got to learn something new from this article. If you liked this article then do share it with your friends and family. Till then keep learning, keep earning and stay happy as always.
Smallcase Vs Mutual Funds?https://t.co/x61fa8ItWT pic.twitter.com/RczkicRF2v
— Karan Tiwari (@kt_creators) December 9, 2022