Personal Finance

Should you invest in curated investment portfolios?

Satya Sontanam BL Research Bureau | Updated on June 15, 2021

Such readymade baskets offer convenience and direct ownership, but they ain’t suitable for all

If you are one of those investors who wish to invest directly in stocks/ETFs but don’t have the time or skill to do the required analysis, here is help. You may consider the readymade equity portfolios such as smallcases by Smallcase, Stockbaskets by Samco Securities, One Click Equity by ICICI Direct, Theme Investing by Fyers and Intelligent Advisory Portfolio (IAP) by Motilal Oswal. Here, we look at a few of these products.

How it works

Readymade portfolios are a basket of stocks/ETFs that may reflect a particular investment theme, idea or sector. So, a dividend-yield basket from Smallcase may be made up of stocks that have increased their dividend payout consecutively for the last 10 years and a small-cap basket from Motilal Oswal could have a few stocks of pint-sized firms that are high risk-high return. ICICI Direct provides short term portfolios such as Quant Breakouts 2.0, which is based on quant indicators and F&O (futures and options) data reading. The investing strategies employed to build readymade stock portfolios have been created by SEBI-licenced professionals such as brokers and research analysts, who use fundamental, technical, quantitative models and algorithms.

Few platforms such as Smallcase and Fyers give flexibility to the investors to add/remove stocks or change the weight of the stock. However, baskets by Samco Securities and ICICI One Click does not provide such flexibility for the research-recommended portfolios. Paras Matalia, Head of StockBasket, Samco Securites believes that if flexibility is given to users to deviate from the researched portfolios, it may not lead to desired returns.

For example, Motilal Oswal’s IAP on large-cap rebalances the portfolio on a quarterly basis and on corporate governance issues in any company. This will be intimated to the investor through an e-mail or SMS. However, iDirect’s One Click baskets do not undergo rebalancing. Pankaj Pandey, Head Research at ICICI Securities, says that once the target price of the created basket is achieved, the firm recommends an exit from the basket.

To invest in these portfolios, you need a demat account with these platforms. The minimum investment amount may vary depending on the stocks that make up a basket and varies with the prices of constituents in the basket. All the baskets mention the investment strategy, minimum amount and the historical returns of the basket.

Once a basket is chosen, you can invest a lumpsum or run a systematic investment in it.

Smallcase, in addition to providing baskets on its platform, also provides their infrastructure to all leading brokerages including Zerodha, HDFC Securities, Kotak Securities, Axis Direct, Edelweiss and Angel Broking. The smallcases on most of these brokerages are those built by a subsidiary of Smallcase, Windmill Capital; while some brokerages have curated their own in-house smallcases as well.

Costs involved

In case of Smallcase and Fyers, a flat fee of Rs 100 is charged for one smallcase or a theme. Besides, brokerage and other statutory fees are applicable for all orders. The fee is also levied when the portfolio gets rebalanced and the investor chooses to amend the portfolio.

There are certain smallcases created by managers other than Smallcase’s subsidiary - Windmill - such as Weekend Investing, Green Portfolio and Aurum Capital, which charge subscription fee for a specific period that could be either a fixed amount (between Rs 1,200 to Rs 60,000 per year) or a percentage of the investment value (0.25 per cent to 2.5 per cent annually). The pricing varies across the mangers associated with the Smallcase.

In case of StockBasket, the main charge is also research subscription fee in addition to brokerage charges. This would be about 1.2-1.5 per cent of the minimum investment amount. The firm charges a cancellation fee if you exit or cancel the basket before five years. The firm also returns the subscription fee in case the baskets generate absolute negative return after a tenure of 5 years. Motilal Oswal’s products too work on the same basis of subscription fee which depends on the investment advisor. While brokers such as ICICI Direct do not charge any cost for its products - which are created in-house, they charge the applicable brokerage.

Be cautious

When choosing pre-packaged baskets, the returns may include a backtest period. Since most of these baskets have been created only recently , backtested returns are included to show the longer track record (including the period before the inception of the basket).

Mind you, your return from the invested basket could be different from those shown. This will depend on the price and time of your entry and exit. Also, deviations can occur whenever the basket is rebalanced, and you don’t opt for it.

For investors who understand the stock market reasonably well and don’t want to pay for the services of a mutual fund manager, readymade portfolios offer a good alternative. Also, these platforms make investing convenient by automating the process. You also get to follow and invest in portfolios created by some of the famed money managers.

However, if you opt for baskets where you need to pay research subscription fee, compare it with the other similar MF products. Though the choice of portfolio that fits your risk profile and return requirement is left to you.

Published on June 12, 2021

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