Charges associated with smallcases – now more transparent and simpler!

At smallcase, we are on a mission to develop the most transparent investment product class in India. We believe that transparency is the most critical characteristic of an investment product. To make smallcases further transparent, we’ve made quite a few improvements over the last couple of years. Here’s a quick recap –

• In the first set of transparency related updates, the focus was on getting the basics right. As a part of these improvements, we introduced market cap distribution of stocks/ETFs in the smallcase, linked factsheets with detailed disclosures from the smallcase managers, and valuation ratios of a smallcase along with the comparable index. You can find more details here.
• In the next set of improvements, the focus was to completely move away from using any backtested data in calculations and instead highlight essential parameters of a smallcase like the CAGR and Volatility. Today, the CAGR and volatility of a smallcase are calculated purely based on live data generated by the smallcase since its public launch. Read more here.
• Our last update in this direction was about making the CAGR more contextual and comparable across different smallcases. Thus, we introduced time labels with the CAGR numbers and new filters on the Discover section of our app and website to ensure that returns across smallcases are comparable. You can read this for more details. 

Our latest work towards better transparency includes making the charges associated with investing in smallcases easier to understand and access. Our users have been requesting a tool that can help them better understand all charges associated with investing in smallcases. Before we talk about the tool we’ve developed, it is important to understand that there are two types of charges associated with smallcases –

• Subscription Fee
  TL;DR – Subscription charges are charges that you pay to the Managers for their research.
  
  The Manager of a particular smallcase charges the subscription fee to access the stocks and ETFs constituting that smallcase. This fee directly goes from the user to the smallcase Manager. The respective Managers themselves chalk out the subscription plans and their details. smallcase has no control over the price/fee/plan decided by a Manager for any smallcase. You can currently check out the details of this fee as a part of the subscription flow. 

Note that there are several smallcases for which the subscription fee is zero. These smallcases are called free to access smallcases, and you can find this label along with their names on the app. The top 5 smallcases in terms of the number of investors are free for all to access! 

• Transaction Fee
  TL;DR – Transaction charges are charges that you pay when you place an order on a smallcase. These charges include brokerage and regulatory fees.
  
  The transaction fee is what your broker charges you. You will be able to find details of these charges in your broker ledger and equity contract note. It includes all the charges you pay while buying any stock/ETF from your broker, plus any additional charges if the broker levies. You can find the details of these charges on the fee page of your smallcase broker platform. 

Also important to note is that at no point does the customer directly pay any fee to us. smallcase does not charge you anything for using the platform. The subscription fee is paid by you to a particular smallcase Manager for accessing a fee-based smallcase, while you pay the transaction fee to your broker for transacting/placing smallcase orders.

Introducing an easier way of calculating costs! 

Calculating all costs together can seem cumbersome. The subscription charges were always very clear and easy to understand; they were also displayed on both the app and the website. However, a key component that was on the user to calculate was what costs would an investment entail over a period of time and how would it impact the performance of that particular smallcase. 

That’s where the cost calculator steps in to make your investing journey simpler!
Now you can easily – 

• Check the annualized cost-adjusted returns of a smallcase
• Know about the total investment you would require (including subscription fees & transaction charges)
• Check overall costs and different components of the transaction charges
• Find slippage incurred as per the rebalance timing selected 

You can access the cost calculator tool directly from any smallcase profile. Click on the “Check cost-adjusted performance” option below the Past Performance graph as shown below – 

Once you click, you’ll be able to see the annualised cost-adjusted returns that would have been generated over a period of time as selected by you. 

The total investment is the sum of smallcase investment, subscription fee & transaction charges.  

All transaction fees depend on your broker and, thus, the charges will be different across different brokers. Note that we ONLY include live data to show the cost-adjusted returns of a smallcase. To get further details about the breakdown of charges, just click on the info icon in front of Transaction Charges.

Transaction charges are dependent on the brokerage plan you are on, so you can experiment with editing the brokerage and investment amount to view data for multiple scenarios with ease. To edit these values and see performance for various scenarios, hit the Edit button and find the screen below –

A vital characteristic of a smallcase is the periodical review wherein the Manager decides which stocks to drop or continue within a smallcase to remain relevant to the original idea. When a smallcase Manager issues a rebalance update after reviewing the smallcase in contention, you receive the same the following day, before the markets open. You can choose to act on this update and apply it at any time after, as per your convenience. 

We use average prices of the next day for return calculation of manager’s smallcase, but still the price at which you execute the trade for adding and removing stocks/ETFs in the rebalance will be slightly different from the prices used to calculate the returns on the manager’s smallcase. This may result in a difference between the returns generated by you as compared to the original smallcase. It is only fair that you completely understand the impact of rebalance execution on the smallcase value, which you can now do with the cost calculator tool.

Simply pick between these two rebalance options in the Edit section to understand the same –

• Market Close – Here, the cost-adjusted returns of a smallcase is calculated assuming that the rebalance was applied at the time of closing of markets on the day when the update was received. So if the manager pushed the update on Wednesday, this option assumes the rebalance execution was done on Thursday closing time.
• Next-Day Market Close – Here, the cost-adjusted returns of a smallcase is calculated assuming that the rebalance was applied at the time of closing of markets on the day after the update was received. So, if the manager pushes a rebalance update on Wednesday, this option assumes the rebalance execution by the user on Friday closing time.

How will this help me?

Calculating costs and returns before making an investment decision is considered good practice. Not only does the cost calculator give you a more realistic picture of the cost adjusted returns of a smallcase, but it also helps you compare two smallcases. It gives you increased flexibility to change investment amount, edit the brokerage charged, and define the rebalance execution timings.  

We’ve constantly been working towards making smallcases more transparent for you; this is another step in the same direction. The cost calculator greatly increases the transparency in terms of the cost visibility of any smallcase you’re considering for your next investment. It is now easy to understand charges, making your overall investing experience better.

We’re on a mission to make smallcases the most transparent investing tool in India and have already started working on the next set of features in this direction! We have tried to address all the queries around smallcase charges and hope that these changes will help you make better decisions.