smallcase Vs Mutual Funds: Why It’s Not a Battle But a Balance
When it comes to building long-term wealth, two popular options dominate the conversation: mutual funds and smallcases. But are they really comparable? Should you pick one over the other? And what exactly is a smallcase?
To create a more balanced portfolio, smallcases and mutual funds, both asset classes, serve unique purposes. While both are investment vehicles for retail investors to grow their wealth, they operate differently. When used together, they can build a stronger, more balanced portfolio that aligns with your investment thesis.
In this blog, we’ll break down smallcases vs mutual funds, what each offers, why the comparison is often misplaced, and how combining the two could be the key to meeting investment goals.
What is a smallcase?
SEBI has established a framework for model portfolios and oversees their functioning. A model portfolio is a curated selection of stocks, ETFs, or even mutual funds aligned with a specific investment strategy, objective or theme. These portfolios are created by SEBI-registered Research Analysts and Investment Advisors to help investors achieve diversified, thematic exposure in a compliant manner.
smallcases are model portfolios – curated baskets that can include stocks, ETFs, and mutual funds. These are built around specific themes, sectors, or investment strategies, designed to offer investors a simplified, transparent, and compliant way to invest in ideas. Created by SEBI-registered professionals, known as smallcase managers, each smallcase aligns with a defined financial goal or market view, making it easier for investors to make informed, goal-based decisions.
Key features of a smallcase:
✅ Created by SEBI-registered professionals
✅ Can be composed of stocks, ETFs, or mutual funds as per the theme or strategy
✅ Diversified exposure to multiple stocks, ETFs, or mutual funds within a single portfolio that aligns with a specific strategy, sector, or theme
✅ Transparent and flexible with no lock-in period
✅ Built to spread risk across numerous securities, reducing concentration risk
✅ Offers theme-based investing
What is a Mutual Fund?
A mutual fund is a professionally managed investment instrument that pools money from multiple investors to invest in a diversified portfolio of stocks, bonds, or other assets. Managed by experienced fund managers, mutual funds aim to deliver consistent returns aligned with a defined investment objective.
As an investor, you own units of the fund, not the individual securities, which suits investors who prefer a more hands-off, passive approach to wealth creation.
Difference Between smallcase and Mutual Funds
While both smallcases and equity mutual funds enable investing in diversified portfolios, the key differences lie in ownership, control, and structure.
Here’s a clear comparison to help investors understand their unique features and how they can be combined for an effective portfolio.
| Feature | smallcase | Mutual Funds |
| What it contains | Model portfolio of stocks, ETFs, or mutual funds | Pooled assets (stocks, bonds, gold, international assets, cash equivalents) |
| Control | Direct control; investors hold stocks/ETFs, or mutual fund units in their accounts and can customise portfolios | Minimal control; investor owns units, not underlying assets; decisions by fund managers |
| Diversification | Thematic or strategy-based diversification, typically up to ~50 stocks/ETFs/mutual funds per smallcase | Broad diversification across sectors, asset classes, and geographies. |
| Customisation | High flexibility; investors may modify existing smallcases or create customised smallcases*, changing stock, ETFs or mutual funds selection and weights to match their strategy. | No portfolio-level customisation; investors must choose from predefined schemes set by the fund house. |
| Capital Requirement | Varies by portfolio and market prices | Lower; SIPs can start at ₹500 per month, lump sum at ₹5,000 |
| Expense Ratio | Varies; separate subscription fees, not included in the investment. If the smallcase contains mutual funds, each scheme’s expense ratio is embedded in its NAV; any platform subscription is additional. | Typically 1–2%, deducted from NAV automatically |
| Exit Load | No platform lock-in or exit load for stock/ETF smallcases. If the smallcase includes mutual funds, exit loads or lock-ins (e.g., ELSS 3-year) apply as per the underlying schemes | May have exit load (up to 1–2%) if exited before the minimum holding period |
| Holding Pattern | Direct ownership of stocks/ETFs in your Demat account; mutual fund units held in your mutual fund account, as applicable | Units allotted; no direct ownership of underlying securities |
| Rebalance | Periodic rebalancing, with a detailed report. One‑click rebalance executes trades for stocks/ETFs in demat; for mutual-fund constituents, a consolidated basket order updates units across the underlying schemes. | Fund manager-driven rebalancing, reflected in NAV |
| Taxation | Tax treatment depends on the instrument type inside the smallcase: equity taxation for listed stocks/ETFs; mutual-fund taxation as per each scheme’s category (equity/debt/hybrid), applied accordingly. | Taxation depends on fund type (equity/debt); ELSS funds offer Section 80C benefits |
*Disclaimer: A custom or user-generated smallcase is a basket the investor builds by selecting stocks, ETFs, or mutual funds on their own, whether through fundamental filters, technical signals, a theme like “US tariffs”, or simple personal conviction. Since the smallcase is user-generated, its returns and risks can differ markedly from any model smallcase on the platform.
Which is Better – smallcase or mutual funds?
There is no one-size-fits-all answer here. Both smallcases and mutual funds should be viewed as complementary products rather than one over the other.
For different use cases and risk personas, the choice of product might be different.
Both have their own benefits and differences as listed below.
- Common Goal: Both smallcases and mutual funds aim to achieve capital appreciation by investing in a diversified portfolio of securities.
- How Are They Managed?
- smallcase managers pick and update securities inside a clear, published framework. Investors see the complete list of underlying constituents, whether they are stocks, ETFs, or mutual funds, along with their exact weights, before they invest. Any changes are made only on preset rebalance dates, announced in advance.
- Mutual-fund managers can change holdings, sector allocations, or cash levels on any market day as long as they stay within the fund’s Scheme Information Document (SID). Investors usually learn about these moves later through monthly or quarterly portfolio disclosures.
- Transparency & Control:
- smallcases offer full transparency, with investors able to view all underlying constituents – stocks, ETFs, or mutual funds – in their demat account and make changes to their exposure as desired. Investors can view the constituents of a smallcase anytime.
- Mutual funds provide portfolio disclosures and account statements periodically as per the regulatory guidelines. This informs investors of the holdings and transactions. While investors don’t directly select individual stocks, fund managers rebalance the portfolio based on the fund’s investment mandate and market conditions.
- Knowledge Requirement:
- Investors should carefully read all relevant documents and understand the risks involved to ensure their choices align with their investment goals. Whether investing in smallcases or mutual funds, doing due diligence is essential.
Benefits of Investing in smallcases
smallcases offer a modern, flexible approach to investing – tailored for individuals seeking transparency, control, and strategic alignment with personal financial goals. Here are the standout advantages:
1. Unique, Idea-Based Portfolios
smallcase managers build portfolios around focused ideas and strategies not easily accessible elsewhere. These include themes such as Atmanirbhar Bharat, Green Energy, Rising Rural Demand, and House of Tata. Each smallcase is based on a research-backed strategy and offers direct access to its underlying stocks or ETFs.
2. Customisable and DIY Investing
Unlike mutual funds, smallcases allow investors to create their own portfolios or modify existing ones. Users can add or remove stocks/ETFs, adjust weightages, and even set up SIPs into multiple stocks at once by creating their own portfolios.
3. Thematic Exposure with Optional Concentration
Some smallcases include a limited set of carefully selected stocks. This concentrated approach is intended to reflect a strong view on a specific strategy or theme, unlike mutual funds, where the market cap restricts the fund manager to take concentrated bets over a few stocks. For investors aligned with such an outlook, this structure may offer higher return potential, though it also involves proportionate risk.
4. Flexible Execution and Control
Even in manager-curated smallcases, investors have the flexibility to accept or reject rebalance updates, remove specific stocks, or pause SIPs. This makes the structure different from mutual funds, where all portfolio changes are executed automatically by the fund manager without investor-level discretion.
5. Market-Linked Order Execution
For stock smallcases, buy and sell orders are placed at market prices during trading hours. This enables real-time visibility into execution and pricing. In contrast, mutual funds and mutual fund smallcases execute orders at the day’s end NAV.
Using smallcase and Mutual Funds to Create a Balanced Portfolio
Mutual funds are ideal for building a stable, diversified core portfolio, especially for beginners or those with limited time or expertise. They offer professional management, broad diversification, and accessibility.
smallcases are perfect for investors who want more control, transparency, and targeted exposure to specific themes or sectors. They allow you to customise holdings and potentially enhance returns by focusing on high-growth opportunities.
Use Case Example: Two Investors
- Ravi, 30, a salaried professional, uses SIPs in mutual funds and invests in smallcases like “Electric Mobility” for sectoral exposure.
- Meena, 45, prefers professional fund management for retirement but actively invests in dividend-growth smallcases for predictable income.
Things to Consider Before You Invest
| Aspect | Smallcase for stocks | Mutual Fund smallcases | Mutual Fund |
| Fees | Subscription fees (charged by the smallcase manager or platform), plus brokerage charges on trades | Annual expense ratio of the underlying mutual funds (embedded in NAV) plus any subscription fee, if applicable | Annual expense ratio (charged by AMC, embedded in NAV) |
| Transparency | Full transparency with real-time access to all holdings (stocks/ETFs) in your demat account; visible anytime | Periodic disclosures via AMC statements & portfolio factsheets; smallcase interface shows scheme names, weights, and performance | Offers transparency through periodic portfolio disclosures and account statements |
| Lock-in | None (unless investor chooses a thematic product with restrictions) | Depends on the underlying mutual funds in the smallcase (e.g., ELSS funds have a 3-year lock-in) | Depends on fund type (e.g., 3 years for ELSS) |
Note: Assess your risk appetite, financial goals, and investment horizon to build a balanced portfolio – these two investment vehicles work best together and play a crucial role in long-term wealth creation.
Conclusion
To sum up, it’s not about choosing between smallcases and mutual funds – it’s about using both to build a smarter, more resilient portfolio. Mutual funds provide a strong, diversified foundation, while smallcases offer flexibility, transparency, and the opportunity to pursue specific investment themes. Combining both can help you achieve your financial goals with a mix of safety, flexibility, and growth potential.
