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The overlap between mutual fund investors and stock investors in 2015 was very minuscule. Kamath predicted it would change rapidly in the next decade witnessing the average investor diversifying their portfolio beyond mutual funds by adding direct equity and other assets. Kamath believed that it would become the natural progression of the investor lifecycle. The gap between these two was huge and the approaches lie on either end of the spectrum which made the middle ground imperative. This was the moment where the idea of smallcase incepted – a transactive portfolio of stocks, ETFs, etc that could be transacted, tracked and managed very easily.
“Financialization of savings is at an inflection point from an equity asset class perspective. More people are investing in stocks and mutual funds. The larger part of investors’ portfolio allocation is being made to equities. Demat/mutual funds and ETF folios/activity from retail has been the highest and seen exceptional growth in the recent past. This would only continue with increasing digitization, growing literacy, younger demographic with higher risk appetite and long term horizons,” said Vasant Kamath, founder and CEO, smallcase
Kamath believes a lot of platforms and players have come up in the last three years and all of them are increasing access to different products, even existing apps or ecosystems are adding investment products to their offerings to increase monetization. Smallcase has pioneered and created a category and has partnered with all the leading broking and distribution platforms to enable more investors to add stocks or ETFs to their portfolios.
India has seen a rapid increase in the influx of investors entering the equity markets, substantiated by data shared by repositories. Some of the factors that have contributed to this growth are rapid adoption of digital transactions and mobile services after the pandemic, longer investing horizons, higher risk appetite and growing depth in markets and investment products with new-age tech company IPOs.
Smallcase’s new product offering Horizon smallcase helps investors allocate money towards specific goals that they may want to achieve in a predefined year. The company is offering six different smallcases for investors to choose from, based on whether they want to achieve their goals from 2030 to 2055. Horizon smallcases are a unique product for goal-based investing which are transparent, with no lock-in periods or mandatory investment amounts offering flexibility to investors. The company has raised four rounds of capital from seed to Series C.
Horizon smallcase allows dynamic asset allocation which is built on the basic philosophy that in the early years one can take higher risks for higher returns, and when one gets closer to the target year investors tend to make more conservative investments. This is done by investing a larger portion into more volatile instruments like equity and gold early on and in the later years balancing it out with fixed income and cash instruments as they are safer options. According to Kamath, there are no penalties if the investor needs to withdraw money and there is transparency in the rebalance of portfolios of what is being sold and bought.
Vasant Kamath wanted to make direct equity investing healthier and easier for all. The foundational infrastructure of exchanges, depositories, etc has been around for decades, pipes that link multiple different capital market participants had not been developed due to which each participant had to build capabilities that were not core to their business/DNA so the service could be provided to their clients as smallcase aims to become the glue between ecosystem players and bridge varied businesses like transaction platforms to distribution networks to advisors to information portals etc.