Difference between Mutual Funds & Small case
Unlike mutual funds, with smallcases you get:
- Cost Efficiency – No expense ratios
- Transparency – See what’s inside the portfolio at any time. Mutual funds portfolios is updated monthly.
- Full Ownership – You buy the stocks into your account directly (not just units)
Mutual funds are market capitalization based(large-cap, mid-cap & small-cap, multi-cap, flexicap) or sector-based(ex Pharma, IT). But smallcase enables you to invest in ideas. For example, one can invest in companies that are working towards affordable housing projects if the focus of the government is on providing affordable housing to all. The stocks can be of different market capitalization or sectors.
Mutual funds have an expense ratio that includes fund management, distributor’s commission, and other expenses. This expense ratio is annually deducted from your investment and is around 1-2 percentage of the investment.
On investing in mutual funds one gets fund units at NAV, and not the stocks that make up the portfolio of the fund, so one does not become a shareholder of a company when one invests in a Mutual Fund. While when one invests through small case one gets shares in one’s Demat account. The main difference between Small case vs Mutual Funds is the same as the difference between Stocks and Mutual Funds, who owns the shares. In the case of Mutual Funds, mutual funds owns the shares and gets all benefits like Dividends, Bonus.
When a Mutual Fund buys or sells any stock from its portfolio the tax burden is not carried by the Mutual Fund Investors. But when a Small case is bought or sold tax comes into play based on the holding period.