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Below are View On A brief about smallcase Technologies By Mr. Vasanth Kamath, Chairman, Founder and CEO, smallcase Technologies - Motilal Oswal

A brief about smallcase Technologies

smallcase Technologies (ST) builds platforms and investment products to enable a retail investor to have a diversified portfolio in direct equities. A smallcase is a basket of stocks/ETFs weighted intelligently to reflect an idea. Currently, ST has more than 3.5m customers, over 250 managed products, more than 250 distribution partners, and over 150 smallcase managers. The idea behind the platform is to close the gap in financial products such as: 1) the lack of real-time disclosures in MFs, and 2) direct equity investing, where investors could not diversify owing to lack of knowledge. ST works with the top stock brokers of India, with access to more than 90% demat accounts.

Business model

* There is no minimum ticket size. The minimum net worth requirement for smallcases is less than USD7k as compared to the minimum ticket size/net worth requirement of USD70k/USD700k for PMS.

* ST earns: 1) 10-15bp on every transaction, and 2) 20% share in the profits made.

* Investors have to pay normal brokerage fees and no additional charge is levied for use of the smallcase platform.

* ST provides differentiation in equities by way of: 1) additional diversification, 2) adding a layer of professional management to an investor’s smallcase portfolio, and 3) aids in creating a portfolio combination of any asset (in future it expects to add products like bonds, crypto currencies, etc.).

Huge room for growth in passive products as India is at an inflection point

Empirically, countries like China, US, and Australia have depicted that shift towards passive investing gathers momentum past the point of inflection. Such shifts had taken less than a decade in the global market and a similar phenomenon is expected in India. Currently, 8% of all fund assets in India are in passive products. Various tailwinds in favor of passive funds are: 1) diminishing alpha in active funds, 2) rise of the digital and cost-conscious investor, and 3) regulatory intervention preferring passive funds.

Role in the MF industry

* ST primarily works with ETF teams of top AMCs and aids them in increasing their ETF flows through:

* Enabling ETF transaction on their own apps,

* Few fund managers creating their own smallcases, and

* It enables visibility of real-time NAV to investors for smallcase of ETFs.

* The management said one can’t compare the charges of a smallcase investment with MFs directly as there are various factors involved in determining the same. However, the average cost of a smallcase investment would be lower than an MF investment.

Other highlights

* Average customer age for smallcase in the last two years has reduced to 28 years from 29 years.

* AUM per investor touches INR0.25m over 24 months post creation of the first smallcase portfolio.

* smallcase has seen accelerated customer growth, led by market performance, addition to distribution channels, and the COVID-19 pandemic which has boosted online usage.

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