Mutual funds vs smallcases: Which is smarter for wealth creation?

The reason behind the popularity of mutual funds

Safe isn't smart! And yet mutual funds are amongst the most popular investment options. Let's figure out why!

Ensured diversification & professional management

Mutual funds pool money from lakhs of investors to buy dozens of stocks and bonds.

Even with small contributions, you get access to a broad portfolio that's professionally managed.

This shields you from the risk of holding just a handful of stocks, which could sink if one company falters.

Has low barriers to entry

You can start investing with as little as ₹500 a month through SIPs. That means even first-time investors or young professionals can begin building wealth without waiting to accumulate a big lump sum.

Offer liquidity & regulated by SEBI

You can redeem your funds on any business day, and the industry is tightly regulated.

Investors know their money isn't locked in a black box. There are rules for disclosure, valuation, and oversight. This sense of security is why mutual funds are considered "safe" by so many.

Highly convenient for passive investors

For people who don't want to track stocks, mutual funds are "set and forget."

You let a fund manager do the work, researching, rebalancing, and timing the market while you go about your life.

How's smallcases as an alternative?

A smallcase is a curated basket of stocks or ETFs built around a specific idea, theme, or strategy, like renewable energy, debt-free companies, or growth momentum.

Unlike a mutual fund, where you only hold fund units, a smallcase gives you direct ownership of the underlying stocks in your demat account.

This structure makes smallcases a compelling alternative for investors who want:

• More transparency: You can see every stock and its weight in real time.
• Greater control: Add, remove, or adjust stocks whenever you choose.
• Thematic exposure: Invest in focused ideas that mutual funds may overlook.

While mutual funds are designed for hands-off investing, smallcases appeal to those who want a more active and flexible approach to wealth creation, with the potential for higher returns if the theme performs well.

Choose the best smallcase company offering the best alternative investment method for mutual funds leveraging expert-curation, research-backed and fundamental-driven portfolio management.

Comparing an average mutual fund performance to an average smallcase performance

Mutual funds

Midcap mutual funds have recently delivered more substantial long-term returns and better risk-adjusted profiles than smallcap ones.

Over ten years, many actively managed equity funds underperformed their benchmarks; only around 32% beat the indices.

Smallcases

Some well-managed smallcases have delivered a CAGR of around 35%+ over 3 years.

For example, PINC Momentum Fundamental shows around 33.8% 3-year CAGR (as of July 2025), albeit with high volatility.

According to WeekendInvesting analysis, some smallcase strategies have returned 105% when the benchmark delivered 87%.

However, the tax on short-term gains for small cases is 15%, compared to mutual funds' 10% LTCG rate for equity sold after 12 months.

Mutual funds vs smallcase: A brief comparison

The following table demonstrates the difference between the mutual funds and smallcase based on various features:

What do you get with smallcases that you don't get with mutual funds?

Here's what you get with a smallcase investment that you don't get with mutual funds:

You get direct ownership & transparency

When you buy a smallcase, the stocks land directly in your demat account.

You see each company and its weight in real-time. No waiting for monthly fact sheets, and no mystery around where your money is parked.

Investors have flexible control over their investment

Unlike a mutual fund, where you can only buy or sell the entire unit, smallcases give you total control.

Want to exit one underperforming stock but hold the others? Done. Want to rebalance early because you're cautious? Easy.

There are Lower recurring costs

Mutual funds charge an expense ratio every single year, whether they perform or not.

With smallcases, you only pay brokerage on transactions and a nominal subscription if applicable. This means more of your money is compounding for you.

Smallcase offers thematic focus & agility

Smallcases are built around clear themes such as momentum, debt-free companies, sectoral bets, or macro trends like "China+1 manufacturing."

This allows you to capture specific opportunities that a broad mutual fund might miss while following a disciplined framework.

Ensure faster reaction to market signals

When markets shift, smallcases can be rebalanced more quickly.

For example, PINC Momentum Fundamental portfolio focuses on stocks showing strong earnings traction and can update more nimbly than a mutual fund that rebalances quarterly or biannually.

Faces customised risk exposure

With smallcases, you can stack multiple strategies to fine-tune risk, combine a momentum strategy with a defensive dividend play or a sectoral bet with a broad-based compounder.

It's like building your own multi-fund portfolio but with sharper control.

Conclusion

So in short, mutual funds give comfort and ease whereas smallcase promises control, clarity and diversity.

It offers the opportunity to get high returns on your investment, even through market volatility, if you diversify your portfolio well.

Mutual funds can be good for passive investors. However, they are often limited, and you have to cough up significant recurring costs as well.

Smallcase investment, on the other hand, offers flexibility, transparency and tolerability towards short-term volatility and tax rates.

All you have to do is choose a reputable investment advisor to leverage this investment method.

We at PINC Wealth are a leading wealth management advisory firm offering research-backed, expert-curated smallcase portfolios to help you achieve your financial goals. Start your investment journey today!