Do you keep seeing ads about curated portfolios for you from Smallcase, WealthDesk and others? Let’s discuss these curated portfolios. And check whether investing through Smallcase and WealthDesk is better for you.
Estimated read time: 4 minutes and 22 seconds
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Buckle up, here we go!
Investing in individual stocks directly has always been seen as an extremely risky thing, mainly for retail investors like me and you. We require above-average knowledge about the market and companies to invest directly and manage our investments with a greater risk appetite.
But as we know, most retail investors have little knowledge about the market, companies, etc. We have little time to keep analysing the market and company’s performance to manage our investments.
So the experts created mutual funds for us. They manage our money for a small fee. There are two types of fund management styles: active and passive (index). We have discussed them in depth here.
Now, to protect the interest of retail investors, the market regulator SEBI has placed a lot of restrictions on mutual funds. So even the active mutual funds cannot give more customised funds and control to investors.
Here come startups like Smallcase and WealthDesk. They have launched a platform where fund managers can build a curated portfolio based on a specific strategy, theme, or idea.
SEBI registered professionals create and manage these curated portfolios actively. These platforms allow you to take part in these curated portfolios.
If you have already read our piece on passive and active mutual funds. And prefer to go with passive mutual funds, you need not think about these curated portfolios much.
But if you are interested in active funds, willing to take the additional risk and time. These curated portfolios can be pretty interesting to look at.
How do Smallcase and WealthDesk investments work?
The curated portfolios in Smallcase work similar to active mutual funds, where a manager builds a fund based on a specific theme. You can analyse the fund’s and manager’s performance, risk and other parameters to invest or not.
But they built these curated portfolios to give you more transparency and control over your investments. What does that mean?
In mutual funds, you get to look at the investments made by the manager at the month’s end. You don’t get to say anything about it and don’t control the investment decisions taken by the manager.
But in Smallcase, you get to look at investments in real time. Whenever the manager feels there need some updates in the fund, he sends the information to you. And you can decide whether to accept his suggestions in your portfolio. Sounds cool, right?
Also, when you invest in mutual funds, you buy the units from the mutual fund. You don’t own the stocks directly. But in smallcases, you own the stocks. They store these stocks in your Demat account, and you can choose to buy/sell them anytime.
This is amazing, right? You get to customise your portfolio and have control over them.
But all these benefits come at a cost. Let’s discuss them.
Drawbacks of investing in curated portfolios of Smallcase and WealthDesk
1. Charges
Every time you buy or sell an individual stock, you pay brokerages and transaction fees like STT, exchange and dp charges.
In mutual funds, you never have to worry about the above charges as the manager invests in the stocks. You just buy the fund units and don’t own the stocks directly. Even when the manager makes any rebalancing in the portfolio, you don’t have to pay any charges.
But in smallcases, you pay the brokerages and transaction fees every time you buy or sell shares. On average, a manager of smallcases rebalances a curated portfolio every 3 months. And every time you accept his suggestions, you end up buying or selling shares. This leads you to pay the brokerages and transaction fees.
Also, often the smallcases ask you to invest more during the rebalancing as the market prices of the shares changes. So having a fixed SIP in these curated portfolios is tough.
2. Tax
As you may know about the long-term and short-term capital gains. If you sell equity shares within 12 months, you pay a 15% tax on the profits. So, when you rebalance your Smallcase portfolio every 3 months, you pay the STCG tax of 15%.
In mutual funds, you don’t have to worry about this, as the rebalancing does not affect your capital gain tax status.
3. Capital Required
In Smallcase, as you own the stocks, you are buying the shares at the market price. That means if your portfolio holds 1 share of Reliance, you need to invest around ~₹2.5k to own it. This leads to a high minimum investment amount for these curated portfolios.
Most of the curated portfolios in these platforms have a minimum investment amount of above ₹30k. Whereas the minimum investment amount in mutual funds can go as low as ₹500.
4. High Risk
As these curated portfolios are more customised to a specific theme or idea, they are more concentrated and have a high risk. You need to invest in multiple such portfolios to make your investment portfolio more diversified.
Also, most of these portfolios don’t have a long track record to analyse their performance in multiple market cycles.
Should you invest in Smallcase or WealthDesk curated portfolios?
At first glance, many curated portfolios have given better returns than the market in the last few years. But as we look deeper into the practical use case, things look different.
They market these curated portfolios as built for retail investors, but you need above-average knowledge about the market and companies to know whether to accept the rebalancing. And also to build a diversified portfolio.
You also need a huge capital to invest, as the minimum investment amount is high. And only then do the charges makes sense. If you have a small capital of less than ₹50k, it is better to focus on mutual funds.
Investing in smallcases for fixed SIP or a long-term approach makes little sense, as investment amounts vary based on the market prices. And the quarterly rebalancing removes the LTCG benefits.
So, all-in-all, you can invest in smallcases if you have huge capital to invest. You have above-average knowledge of investments, and your risk appetite is high. Invest if you want to make short-term gains based on specific momentum or idea.
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Still Curious?
If you are like us, who likes to analyse a little more or check out content in different formats, well you are in luck. Below you can find some suitable content we found.
MoneyControl – Explained | What Is Smallcase Investing: Pros And Cons
CA Rachana Ranade – All you need to know about Smallcase
Ankur Warikoo – True cost of Smallcase Investing EXPOSED
Note: We don’t have any affiliation with them. We are sharing links only for educational purposes. The opinions expressed by them belong solely to them and do not reflect the views of Vrid.