How to Pick the Right Smallcase Baskets in India

What is a Smallcase?

A smallcase is a professionally curated portfolio of stocks or ETFs built around an idea, theme, or strategy. Instead of buying individual stocks, investors can invest in a basket that directly reflects a particular trend, such as green energy, manufacturing growth, or momentum investing. Unlike mutual funds, smallcases are fully transparent because the stocks sit in your demat account.

Why Investors Choose Smallcases

➤ Transparency – You own each stock in your demat, not just a fund unit.
➤ Thematic Exposure – You can invest in big-picture ideas like EVs, infrastructure, or defense.
➤ Professional Rebalancing – Portfolios are adjusted periodically to stay aligned with the strategy.
➤ Discipline – Automated rebalancing keeps emotions out of the decision-making.

Understand the Costs Before You Invest

When selecting a smallcase, always look at the total cost of ownership:

➤ Platform Fees – ₹100 + GST per buy/rebalance order (capped at 1.5% of order value). SIP orders cost only ₹10 + GST.
➤ Subscription Fees – Some managers charge extra (monthly, quarterly, or yearly) for access to their premium portfolios.
➤ Brokerage & Taxes – Standard delivery brokerage, STT, GST, and SEBI charges still apply.

💡 Pro Tip: Use SIPs for smoother cost control, since SIP orders are cheaper than one-time top-ups.

Tax Impact on Smallcase Investors

Recent tax changes mean:

➤ Short-Term Capital Gains (STCG): 20% on stocks held less than 12 months.
➤ Long-Term Capital Gains (LTCG): 12.5% on holdings over 12 months.

Because smallcases involve periodic rebalancing, some sells may trigger STCG. That’s why understanding turnover is crucial.

7-Step Framework to Pick the Right Smallcase

1. Define Your Goal and Horizon

➤ Are you investing for long-term wealth (5–7+ years) or short-term exposure to a theme?
➤ Momentum and sectoral baskets suit short-to-medium horizons, while diversified baskets suit long-term wealth creation.

2. Check Manager Credentials

➤ Look for SEBI-registered managers.
➤ Study their investment philosophy and track record.
➤ Favor managers with a clear and transparent process.

3. Study the Strategy Design

➤ Understand if the basket is factor-based (quality/value/momentum) or theme-based (manufacturing, defense, EVs).
➤ A concentrated basket (10–15 stocks) = higher risk, higher return potential.
➤ A diversified basket (25–35 stocks) = steadier performance.
➤ Rebalancing frequency matters: monthly = active, quarterly/half-yearly = steadier.

4. Go Beyond Returns

➤ Assess volatility and past drawdowns.
➤ Check liquidity of underlying stocks.
➤ Look for notes on turnover and trading costs.

5. Calculate All-In Costs

➤ Add up platform charges, subscription costs, brokerage, and expected taxes.
➤ Ensure small investments don’t get eroded by repeated ₹100 execution fees.

6. Broker Integration

➤ Choose a broker that integrates smallcase seamlessly (e.g., Zerodha, Groww, HDFC Sec, Upstox).
➤ Smooth integration makes SIPs and rebalancing easier.

7. Follow Rebalancing Discipline

➤ Always read the rebalance note to understand changes.
➤ Execute rebalances regularly; skipping defeats the strategy.
➤ Be tax-smart: if you’re close to 12 months, weigh STCG vs. LTCG before selling.

A Practical Example: Core-Satellite Allocation

➤ Core (70–80%) – A diversified, low-turnover basket like “Quality Companies” or “Large-Cap Leaders” for long-term stability.
➤ Satellite (20–30%) – Thematic or momentum smallcases (e.g., “India Manufacturing” or “Momentum Stocks”) for higher growth potential.

This way, your core ensures stability while your satellite adds extra return potential.

Common Mistakes to Avoid

➤ Chasing Past Returns – Performance charts look attractive but are never guarantees.
➤ Ignoring Costs and Taxes – Fees and taxes eat into real returns if overlooked.
➤ Over-Diversification – Don’t hold too many overlapping smallcases.
➤ Skipping Rebalances – If you avoid updates, your basket drifts away from its core strategy.

Quick Checklist Before Picking a Smallcase

➤ My goal and time horizon are clear.
➤ The manager is SEBI-registered and has a transparent process.
➤ I understand the strategy in one line (e.g., “Momentum in midcaps”).
➤ Position count and liquidity fit my risk appetite.
➤ I’ve calculated costs: fees + subscription + taxes.
➤ My broker supports smooth SIPs and rebalancing.
➤ I’m ready for short-term volatility.
➤ I won’t skip rebalances.

Final Thoughts

Choosing a smallcase is not about chasing the best past return, but about finding the right fit for your goals, costs, and risk appetite. By defining your horizon, evaluating the manager, studying the strategy, and accounting for costs and taxes, you can confidently invest in smallcases as part of a disciplined wealth-building journey.

Disclaimer: This article is educational and not investment advice. Equity investing is risky—consult a SEBI-registered adviser before investing.