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Category: Smallcase

  • Two years with Weekend Investing’s Mi_NNF10 Momentum smallcase

    Two years with Weekend Investing’s Mi_NNF10 Momentum smallcase

    My second year with Weekend Investing’s Mi_NNF10 Momentum smallcase was going okish, until a report from Hindenburg Research—accusing Adani Group of brazen stock manipulation and accounting fraud—burned everything.

    Hindenburg report

    Mi_NNF10 smallcase had invested in couple of Adani Group companies from Nifty Next 50 index. Once the Hindenburg report was released there was a massive sell off in Adani Group companies. In a single day, two years worth of my (unrealised) profits were wiped clean and I was in red. I initially thought of exiting only Adani stocks, but decided against it and went with fund manager’s monthly rebalance.

    The lower circuit

    When it was time to do monthly rebalance, I could see that all the Adani stocks were being sold off. I hit the Confirm Update button on the smallcase portal but one of Adani Group company stock hit the lower circuit and I could not sell it. I had to repair my smallcase; a first for me in 2 years. But it kept hitting lower circuit I lost 70%. Ouch!

    My learnings

    While smallcase simplifies direct equity investment with a fund manager’s guidance there are certain caveats that I learned along the way.

    1. Taxes

    With every rebalance you will be selling some or the other stock. And with that you will be hopefully making some long or short term capital gain; mostly it will be short term capital gain. And that is taxed at 10% or 15%. But you won’t pay that right away. It will magically show up while filing your tax returns. When I was filling my tax return I could see a bunch of capital gains that were getting taxed but it was really difficult for me to analyse if they were from the smallcase or my own trades. And if you have more than one smallcase then… well you get the idea. In essence, calculating impact of taxes on your smallcase is very difficult, if not impossible.

    In contrast, calculating impact of taxes on your mutual fund redemptions is fairly straightforward.

    2. Lower circuit

    If any of your stock in smallcase hits lower circuit when it’s time for rebalance and you need to sell, then you are f…, I mean you are at gods mercy. This is what happened to me and I had thought it will never happen to me. You see, I chose Mi_NNF10 for a reason; it only invests in Nifty Next 50 companies. What could go wrong, right? Wrong! One of the Adani Group companies went into lower circuit and by the time I was able to sell it, I lost 70% on that investment. Ouch!

    3. Comparison to benchmark

    Since there is no NAV for the smallcase you cannot compare it to any benchmark. There is chart on the smallcase homepage that shows its performance against equity large cap, but that does not consider impact of fund manager’s fees, LTCG, STCG, and events like lower circuit hampering your rebalances. I can be making 20% XIRR but I cannot compare it to any index say Nifty 50 Index. Had I invested the same money in Nifty 50 Index would I have made better returns? I can never answer this question.

    Unsolicited tip for smallcase folks: Show historical performance of smallcase for each individual.

    4. Expense ratio

    If you want to get full benefit of your smallcase then you need to look into expense ratio. If your expense ratio is more than 5% then its not worth it. IMHO, it should be in the range of 1-2%; similar to that of mutual funds. And this expense ratio has to be managed by you. Unlike mutual funds, where it does not matter how much you invest—five hundred or five lakhs—the expense ratio remains the same.

    One good side effect of managing the expense ratio was that, with dividends earned I was able to recoup my subscription fees in its entirety for both years.

    And yes, the fund manager started a scheme offering discounts to subscribers who had been with smallcase for more than two years reducing my expense ratio for this year. Yay!

    Return

    Calculation of Amount Invested

    • Subscription fee for smallcase
    • Being fee for smallcase
    • Amount paid while rebalancing
    • DP charges that I incur while selling stocks due to rebalancing
    • Amount received while rebalancing (deducted from Amount Invested)

    Profit Percent

    Future

    I am planning to continue in the smallcase for one more year.

    Related reading

  • One year with Weekend Investing’s Mi_NNF10 Momentum smallcase

    One year with Weekend Investing’s Mi_NNF10 Momentum smallcase

    After trying my hands with Low Risk – Smart Beta, I decided to get serious with smallcase. I chose Weekend Investing’s Mi_NNF10 Momentum smallcase. There were three primary reasons for selecting it.

    1. This smallcase invests in 10 of the Nifty Next 50 companies. These are the companies which I recognise so I was comfortable investing in them.
    2. Stopping my rebalances will mean, at worst, I will be stuck with Nifty Next 50 companies; which shouldn’t be that bad.
    3. This smallcase rebalances every month. There were other smallcases which were rebalanced every week and it was too much for me. Monthly rebalance was something that I could handle. I would have preferred a quarterly rebalance but I guess that’s how momentum strategy works.

    Return

    I have considered below components in my Amount Invested.

    • Subscription fee for smallcase
    • Being fee for smallcase
    • Amount paid while rebalancing
    • DP charges that I incur while selling shares due to rebalancing
    • Dividends (deducted from Amount Invested)
    • Amount received while rebalancing (deducted from Amount Invested)

    For the first six months I did not see any profit. After that the profits have improved and even during the current market correction the smallcase seems to be holding on.

    Profit

    I have renewed my yearly subscription to this smallcase. Let’s see how it performs in its second year for me.

  • Three years with Low Risk – Smart Beta smallcase

    Three years with Low Risk – Smart Beta smallcase

    A couple of years ago I listened to Anupam Gupta’s Paisa Vaisa podcast explaining something called as smallcase. Intrigued, I continued to learn more on it. And around 3 years back I decided to dip my toes in the water by subscribing to Low Risk – Smart Beta. Here is what I learned.

    I should not have dipped my toe in this water. I should have dipped my entire foot. Let me explain. A smallcase needs regular rebalancing i.e. every now and then you are going to sell some of your stocks and buy new ones. As I was just dipping my toe in water, I had invested minimum amount required. And rebalancing of smallcase every 3 months meant that most of the time I was selling 1 stock and buying 1 stock. Yes, just 1 stock. That also meant paying brokerage and taxes on every transaction. That in turn meant I was negating whatever minuscule gains I had made before rebalancing.

    After 3 rebalances, I decided to ignore the rebalance notification. As the stocks in the smallcase were reputed companies, I was okay to hold them for long term. Here’s how it has performed for me.

    Psst! If you want to subscribe to a smallcase, go for discount brokers (like Zerodha). You will save big while rebalancing.

    Returns

    For the first year, I diligently rebalanced my smallcase (by selling 1 stock and buying 1 stock). It was towards the end of 2019 I realised my stupidity and stopped rebalancing. Since then, post COVID-19 market crash the worth on my investment has steadily risen.

    If you notice Amount Invested (red line), every now and then it goes down ever so slightly. That is the dividend amount that I am reducing from my Amount Invested.

    Profit

    As you can see, profit has been made only after COVID-19 pandemic market crash. As far XIRR goes, the smallcase has given 16%. And I am happy with that—considering I was dipping my toe in water.