Choose curated portfolios to avoid rookie mistakes, say analysts

Avoid offerings that are too concentrated or have very high churn

ICICI Securities recently launched four curated baskets of stocks created by three well-known money managers. These are portfolios that its customers can invest in with a few clicks of the mouse. Another player called smallcase, which has been around since 2016, currently offers more than 250 such baskets. These are available on the platforms of 12 leading brokerages. WealthDesk is another player with similar offerings.

Handholding new entrants  

The stock market has witnessed a massive influx of new investors over the past year. “Around 14 million demat accounts were opened in FY21 — more than three times the average for previous years. Most of these new investors are investing in stocks without any expert advice or handholding. This could lead to disappointment owing to wrong stock selection,” says Anupam Guha, head–private wealth management, ICICI Securities.

With seasoned professionals picking stocks, new entrants can avoid many rookie mistakes (see box). The three experts ICICI Securities has chosen to build its curated portfolios are Sunil Singhania, founder, Abakkus Asset Manager; Rajesh Kothari, managing director, AlfAccurate Advisors; and Vikas Khemani, founder, Carnelian Asset Advisor.       

Such advisors monitor the portfolios and rebalance them periodically. “Whenever they change the stocks in their portfolios, or their weighting, the investor receives a notification. He can achieve these changes with just a few clicks. He does not have to buy or sell individual stocks to arrive at the updated portfolio,” says Vasanth Kamath, founder and chief executive officer, smallcase.  

New investors who have just opened their demat accounts want the thrill of direct investing. They desire a sense of control, which they do not get in mutual funds. In curated baskets, the execution remains in their hands, so they retain some control over their investment decisions.

Fee and non-fee-based portfolios

Many of smallcase’s portfolios don’t have a fee. “In our fee-based portfolios, the investor, on an average, pays Rs 5,000-10,000 per annum to the advisor, or 1.5-2 per cent of the corpus,” says Kamath. ICICI Securities charges a fee of 2-2.5 per cent per annum in its portfolios.

Avoid concentration risk

One risk investors should watch out for in these portfolios is high concentration. “Many of these portfolios may have only 10 stocks or so. While they will have the potential to offer higher returns, they will also be more volatile than diversified portfolios,” says Arnav Pandya, founder, Moneyeduschool.

High churn is another risk. “If you are entering with a long-term investor’s mindset, then steer clear of advisors who advise you to constantly buy and sell,” says Ankur Kapur, managing partner, Plutus Capital, a Securities and exchange Board of India (Sebi)-registered investment advisory (RIA) firm.

What should you do?    

Instead of going by the name of the strategy or advisor, take the trouble to understand the investment approach—whether the portfolio will be large-, mid-, multi- or small-cap oriented; momentum, growth, value or blend oriented; and so on. Next assess if the strategy matches your risk profile and fits well into your overall portfolio.

Invest systematically in these portfolios and monitor performance regularly. Find out from the advisor the appropriate benchmark for the strategy and see if it is able to beat it. If it fails to do so over a couple of years, then exit and take a seasoned Sebi RIA’s help to build a mutual fund portfolio with around 90 per cent of your corpus. Invest the balance 10 per cent in stocks to enjoy both the thrill and the learning that can come from direct investing.