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Musings with Analyst | September, 2023

Musings with Analyst | September, 2023
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How does SIP flow work in smallcases?

“SIPs are for everyone – whether you are a beginner or an experienced investor.”

“Invest in SIPs today and reap the rewards tomorrow.”

“Investing in SIPs is like planting a tree – the earlier you start, the more it grows.”

And the list goes on. I am pretty sure you must have come across the benefits of SIP with the entire internet selling you this. Similarly, we have also been quizzed time and again about the way Systematic Investment Plans (SIPs) work in smallcases. Hence, this edition of Musings will explain the concept of SIPs and the way it works in smallcases. Please note, SIPs work differently in mutual funds than in smallcases.

First, let’s understand how SIP works in the case of mutual funds. Well, as you know, the primary difference between a mutual fund and a smallcase is that in the former the entire investor money is pooled into a common fund and units are allocated to respective investors, as per their contribution to the fund. On the other hand, when you invest in a smallcase you get to hold actual stocks (not units) and all the stocks go to your demat account. 

Keeping the same idea in mind, when you initiate a SIP order on your mutual fund, your SIP amount gets transferred to the common fund and a relevant number of units get allocated to you. There is no real restriction in terms of the amount you have to choose for your SIPs, besides a usual minimum amount of Rs. 500.

Now let’s take a look at SIP workings for smallcases. For starters, the primary thing to understand is that there are two types of SIPs in smallcases – Manual & Auto. I will explain this with the help of an example. For instance, there is a smallcase with 5 stocks and weights are equally distributed amongst them with an initial investment of Rs. 1 lakh. 


After 30 days, you decide to initiate a SIP order of Rs. 20,000 every month. Now during these 30 days, due to the movement of stock prices, the weightage of each stock would have changed. Check the table below.

You see, the core focus of your SIP is to bring back the weights of the stocks to their ideal configuration, which in this case is 20% each. Therefore, the funds will be first utilized to buy more of Stock X2, X5 so that they come closer to their original prescribed weights and then the remaining SIP amount (if any) will be used to buy other stocks.

Another nuance to the SIP concept in smallcases is the highest priced stock. Like in mutual funds you can choose any amount you wish to, the same isn’t applicable to smallcases. Any SIP amount doesn’t work in our case. The reason being, the underlying for smallcases are stocks which are not fractionable (as in you cannot buy 1.5 shares of a company) while units are fractionable in the scenario of mutual funds. So the minimum SIP amount of any smallcase is –  2*Highest Priced Stock (Rounded off to the nearest thousand).

Why? This ensures that the SIP amount will always be able to fetch at least 1 share of the highest priced stock along with some other stocks with the remaining amount. Point to note here is that minimum SIP amount for a smallcase is kept at 2*Highest Priced Stock, so that this amount doesn’t change frequently and will only be changed when either the highest priced stock has risen by more than 100% between 2 SIP installments or a new stock has come into the portfolio which has a price higher than the previously highest priced stock in the smallcase.


In Auto SIP, the minimum SIP amount is equal to the minimum investment amount of the smallcase. The major difference between manual SIP and auto SIP is the way in which they get executed. While we saw that manual SIP gets executed on stock weightage, auto SIP gets executed on the number of shares.

In other words, if you have 5 shares each of Stock X1 to X5, in every auto SIP order that many shares will get purchased for each stock. Please find below a simple comparison table between the two. 

You get the difference, right? In the case of mutual funds, things are straightforward as a common fund generates units which can be divided however one wants. While smallcases have to deal with a slightly complex procedure as we have to ensure that every stock in the portfolio is in the right weight and in whole numbers. This also requires generally higher SIP amount as compared to mutual funds because say if a smallcase has Maruti Suzuki stock in it (which is the highest priced stock ~Rs 9,800 from among all the stocks in the smallcase), minimum SIP amount for the smallcase will be rounded off to (2*9800) is equal to Rs 20000. Same is the case for auto SIP as it buys the same number of shares on every order. We at Windmill Capital, are a strong proponent of SIP investing, just like others. The discipline that gets tagged along with SIP does wonders in the long term.

Disclaimer: Investment in securities market are subject to market risks. Read all the related documents carefully before investing. Registration granted by SEBI, membership of BASL and certification from NISM in no way guarantee performance of the intermediary or provide any assurance of returns to investors. The content in these posts/articles is for informational and educational purposes only and should not be construed as professional financial advice and nor to be construed as an offer to buy/sell or the solicitation of an offer to buy/sell any security or financial products. Users must make their own investment decisions based on their specific investment objective and financial position and use such independent advisors as they believe necessary. Refer to our disclosures page, here.
Windmill Capital Private Limited – Research Analyst - SEBI reg. no: INH200007645; Compliance Officer – Ajoy Bharadwaj, Phone Number – 8296014433; Email Id - compliance@windmill.capital; Support email id - notifications@windmill.capital

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Musings with Analyst | September, 2023
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