What is the difference between Small Case and Mutual Fund? – What is Small case and Mutual Fund?

When I pen down the article on the small case then I was getting queries about How Small cases differ from Mutual funds. It’s a valid ask from the investor’s community to make a wise choice between a small case and a mutual fund. Therefore, I titled my article “Difference between Smallcase and Mutual Fund”.

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What is Smallcase and Mutual Fund?

Before we understand the difference between both methods of investment on different parameters. Let’s talk about the small cases and mutual funds in brief.

The small case is a platform that offers an option of investing in ideas, themes, or strategy-based portfolios designed to meet a specific goal. In other words, it’s a basket of stocks and ETFs put in one place to generate balanced returns. In addition, it comes with professional financial advisory from time to time to ensure it meets the set objective.

On the other hand, a Mutual fund is a company that pools money from many investors and then that collective amount is invested as per the objective of the fund. The Money goes for investment in stocks, bonds, money market instruments, gold, real estate, international markets, etc. These funds are managed by fund managers who invest money on behalf of the investors using their expertise to create growth or appreciation on the pool of money.

When we try to understand the difference by their definitions then we could not make out and feels both are alike. However, there are still many differences between both so let’s understand the same on multiple parameters.

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What is difference between Smallcase and Mutual Fund?

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Here are a few differences between Small Case and Mutual funds on these parameters:

ParameterSmall CaseMutual Funds
Ownership of StockIn this case, when you invest in a small case then you get direct stocks credit in your Demat account.However, in the case of a mutual fund you get indirect ownership of stock in terms of Units.
Demat AccountIt is required in the case of a Small case.Whereas same is not needed, you can buy simply from your bank account.
TaxationCapital gain is applicable whenever you’re rebalancing the portfolio. As you’re directly buying or selling shares in the rebalancing process. In case you’re selling your stocks in profits then STCG will be 15% and for the long term it is exempted up to 1 lac and over which 10% is applicable.However, capital gain tax liability does not arise in the case of mutual fund rebalancing as it’s happening internally within the fund. But if you’re selling mutual funds units then capital gain tax will be applicable as per the duration.
Distribution of DividendAs you’re holding the stocks directly, hence you will get dividends directly in your Demat account in case of a stock dividend or the bank account if it’s a cash dividend.In mutual funds, you’re holding the units of particular funds, so if any company announces a dividend, then the same will be reflected in your unit’s NAV. NAV of the units will be increased by the dividend percentage.
Control Over PortfolioAs an active investor, you will have full control over the portfolio. It’s up to you to accept or reject the rebalancing approach. Above all, it allows you to tweak the constituents of the portfolio as per your requirement.But in mutual funds, you don’t have a say. It’s the entire decision of the fund manager how he manages the fund and we are bound to accept his financial expertise.
Lock-in-periodNot applicable in this scenario.In some mutual funds, there is a lock-in period if you sell before the lock-in period, then exit load will be applicable.
ChargesIn the case of Small case investment, there is a flat fee based on the portfolio opted plus the transaction charges at the time of buying and selling of stock. This could go high as the frequency of buying/selling is high. In case your investment amount exceeds 1lac then the investment cost goes down 1%.Whereas for mutual funds, there is an expense ratio applicable in all funds, on average this is 1.5% irrespective of your investment amount.
Availability of OptionsThe small case has given a roadmap of portfolio management services that earlier only wealthy people can afford. With the advent of this platform, now common people also can have renowned investment managers’ expertise at a minimal cost.As compared to small cases, mutual funds particularly invest in themes, strategies but cannot invest in ideas.
What is the difference between SmallCase and Mutual Fund?

Conclusion

One can easily conclude if you’re an absolute beginner in the journey of investment then go with mutual funds. As it’s more suitable for passive investors or beginners who don’t have enough knowledge about the market. Most importantly, cannot manage their portfolio but still wants to streamline their financial goals.

On the other hand, small cases are suitable for active or intermediaries investors. Been in the market for a good time but still like the assistance of investment advisory to be sure they are on right track. As said in the beginning, there is nothing good or bad, each has its own set of investors. Both products have market risk so do your due diligence before investing by any means.

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