Late last year, Rainmatter Capital-backed company, smallcase, was among the first five firms that received the green signal to sell direct mutual funds to their customers. Earlier, only stockbrokers and Registered Investment Advisors (RIA) could sell mutual funds to customers.
Companies like smallcase, called execution only platforms (EOPs), simplify the process of purchasing MFs and other financial services (such as insurance or booking fixed deposits) on digital platforms. The EOP framework was approved by the markets regulator, the Securities and Exchange Board of India (SEBI), last May, and the Association of Mutual Funds in India (AMFI) approved the registration of companies to operate as EOPs on November 30.
"We are also looking to unlock multiple use cases in the smallcase ecosystem through the EOP framework. We are doubling down by extending it to more asset classes as the direction and demand came from our customers," Vasanth Kamath, cofounder of smallcase told Moneycontrol.
As of now, smallcase is a platform where investors pick their basket of stocks based on themes created by RIAs. The company is looking to expand the idea to MFs, global equities, retirement products, and fixed-income products such as FD or corporate bonds during 2024, Kamath said.
EOPs get Rs 2 for every order commissioned on the platform, indicating that the revenue generation potential is rather small, but it is about providing its existing customers with the option of integrating all investments through a single platform. smallcase is backed by Rainmatter Capital, which in turn is backed by Zerodha, which also incubated the startup.
"Our speciality is the curation done by creators or RIAs on our platform. For example, if you want to invest for tax saving purposes, instead of selecting three different ELSS funds and investing Rs 50,000 in each of them or setting up a systematic investment plan (SIP), you can invest in the smallcase that a creator has already researched and curated. A customer can start a SIP into that or invest lump sum as well," Kamath said.
While RIAs can also sell MFs on their platform, most of them would not have the technology to enable them to do so. Hence for them, smallcase, smallcase is an enabler, and also acts as a marketing platform to acquire customers.
Last year smallcase enabled users to import their mutual funds and stock holdings on the smallcase app to provide a comprehensive tracking solution. smallcase users are now tracking Rs 12,000 crore of their mutual fund investments on the app, and can soon start investing as as well as managing their SIPs/transactions from the app.
The whole portfolio approach
Nearly half of all new mutual fund SIPs in November last year were opened on digital brokerages and fintech platforms such as Groww, Angle One, ET Money and PhonePe. smallcase sees this trend as helping the company attract a new set of customers looking to diversify their investment portfolio beyond direct investments in stocks.
Other firms that gained AMFI's EOP registrations are neobank firm Jupiter, AMFI's own MF Utility, Matdev and ET Money. Other startups such as WintWealth and Stable Money are also looking to attract investors with fixed-return investments such as FDs and corporate bonds as customers are looking at diversifying their investments beyond high-risk market products.
smallcase is also a minority investor in Zerodha Fund House's Asset Management Company, which will help investors to choose passive investment in stocks.
"With the AMC, we could actually start helping investors or users who have never invested in equities before. Like, that would be a key driving force behind the kind of products, the kind of mechanisms, the kind of systems that the AMC launches. The idea is not to have overlap between the two different user bases or the products (smallcases and Zerodha AMC) that we launch," Kamath said.
Smallcase hopes that an investor's portfolio could consist of one-third smallcases of stocks and ETFs and another third from mutual funds, including those launched by Zerodha AMC.
The last third could be global equities and fixed investment products. "It is about a well diversified portfolio managed in a simple manner through one platform which fulfils the financial goal or outcome that an investor wants," Kamath added.
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