Smallcase V/s Mutual Funds: Which Is A Better Investment Option


Smallcase and mutual funds, both are investment tools for helping the investor take the right investment decision. Both these tools are similar to each other with some difference you should know about. These differences will decide your tool for investment.

Smallcase v/s Mutual Funds

Following are the ten differences between smallcase and mutual fund you need to read before investing.

1. Control over investment

Investing through smallcase gives you a better control on investments as the shares get directly transferred in your Demat Account. The shares are retained with you and you know where you money is invested.

When you invest through mutual funds, you particularly don’t have a direct control over your investment. You select between Equity and Debt related mutual funds, but in equity where exactly your money is getting invested you may not have a control over

2. Portfolio diversification

Mutual funds are a great way for portfolio diversification with a small capital.Depending on the mutual fund you select, you will have a diversification of more than 100 companies allocated with different sectors. A good diversified portfolio acts as a hedge against market crash or sector breakdown.

The diversification of portfolio gets restricted in smallcase. You get a bunch of stocks under each case but they are not as diverse as that of mutual funds. Smallcase can also be sector based, which may be at high risk as compared to mutual funds.

Smallcase can be of great help for investors who want to invest only in a particular sector for a short term capital gain or have a particular motive like getting high dividend or have a high growth rate, which is also a suitable tool for an active stock market investor.

3. Capital requirement

The main difference between a smallcase and a mutual fund is the capital requirement. You can invest in a mutual fund with lump sum capital of minimum Rs. 5000/- or start an SIP (Systematic Investment Plan) with as low as Rs. 500/- per month. With a small investment also you can enjoy the benefits of portfolio diversification.

Smallcase on the other hand needs a higher capital for investing. Since you are directly investing in shares, you will have to buy each unit of them and to create diversification takes much of your capital.

There are some smallcase which start with a initial investment of Rs. 5000/- but those case invest your money in ETFs (Exchange Traded Funds) which is again as same as investing in mutual funds. The minimum investment requirement for a smallcase can go even up to Rs. 90,000/-.

4. Expense ratio

Expense ratio is defined as the charges you need to pay to these investment houses. That is the fee you are paying to manage your funds on your behalf.

Mutual funds have a very low expense ratio. Again this expense ratio depends on different mutual funds. Usually they lie between 1 – 2 percent of your investment. Expense ration of 1.5% implies that you will be charged Rs. 1500/- over an investment of Rs. 1 lakh.

Another interesting fact with the mutual fund expense ratio is that you don’t need to separately pay you expense ratio charges, they automatically get deducted from your investment. In other words your NAV (Net Asset Value) gets adjusted for all the expenses or dividend gain.

The expense ratio for smallcase works in a little different way. There are different cases, some which are open on to public and some are subscription based. Some cases are prepared by their in house team and some are prepared by some external research analyst company, hence the price varies accordingly.

The price is different for different case and on your capital invested. They can be a little on a higher side as compared to mutual funds.

Know more about smallcase pricing structure here.

Again the difference is that you need to separately pay the smallcase fees which will get auto deducted from your trading ledger. The expenses will not be a part of your investment. These expenses are only levied if you have a discount broker.

5. Exit load charges

One major disadvantage of mutual fund investment are the exit load charges. You can be charged an additional fee of about 1 – 2 percent of your investment if you sell your mutual funds before the lock in period. The minimum duration of holding a mutual fund can vary from 1 – 5 years.

Smallcase doesn’t come with any additional exit load charges and you are not bound by any lock in period either.

6. Holdings pattern

When you invest in mutual funds, you get the mutual fund units on behalf of your investment and not the separate stocks under which it invests. Your returns will be calculated based on the value of these mutual fund units.

Investment under smallcase gives you the direct control over your holding. The shares are present in your demat account and the dividends are directly transferred to your bank account.

In the future if you are not happy with the performance with the particular stock in your smallcase, you can sell off those shares and continue holding your other part of small case.

7. Risk on investment

When it comes to comparing the risk between a smallcase and a mutual fund, smallcase comes with a higher risk. For the reasons being the smallcase are not fully diversified and there is no hedge on your investment. As the mutual funds are managed by experts they have a lower risk.

8. Return on investment

All your investment in equity are subject to market risks. The returns will depend on the market performance. Also, you cannot be sure of your returns based on the past performance of the market.

This is a important factor as to why many new investors prefer smallcase as a medium to invest. As you might be aware of this phase, “higher the risk, higher will be the returns”. This is exactly the main reason investors prefer smallcase. This high returns comes with a cost of you constantly checking the market and analyzing your holdings to manage that extra risk.

Mutual funds on the other hand provide a stable returns of 8 to 12 percent PA. This with no extra burden of monitoring your positions. Mutual funds grow in line with the economy.

Fund managers also keep changing the holding of the fund as when the market demand the change. Also the mutual funds are hedged with Gold and other derivative instrument to manage the risk of market crash.

9. Ability to change

Smallcase gives you a better control over your investment and allows you to change as and when you need to. You can change, modify the quantity, delete or re allocate. The control is directly in your hands.

In the case of mutual funds, you cannot change the the holding of the mutual fund. The decisions to change, modify or re allocate will directly depend on the fund manager and the team managing the fund.

10. Tax benefits

There are some mutual funds that are termed as ELSS (Equity Linked Saving Schemes) which can give you some tax benefits. These benefits will depend from person to person and you need to consult your CA to know how can you take the optimum benefits of these schemes.

The percentage of income tax to be paid on the profits generated from mutual funds and smallcase are more or less the same. I will talk about mutual fund and stock taxation in some other blog (Join the newsletter to stay updated with the information).


Mutual funds can be preferred for investors who are not from a financial background and want to give all the control to a third party to manage the money on behalf of him.

Smallcase on the other hand can be useful for someone who’s with some financial intelligence and understands the technical jargon’s of the market

In a nutshell

Sr NoParticularSmallcaseMutual Funds
1Control over investmentBetter controlNo direct control
2Portfolio diversificationNot well diverseVery well diverse
3Capital requirementHighLow
4Expense ratioHighLow
5Exit load chargesNoneApplicable
6Holdings patternDirect holdingIndirect holding
7Risk on investmentHighModerate
8Return on investmentHighModerate
9Ability to changeFlexibleRigid
10Tax benefitsNoneApplicable

I hope you got to understand the basic difference between these two investment tools. If you have any queries, do post them in the comment and join the newsletter, I will be more than happy to get your doubts cleared.



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