EP40: How Smallcase helped create a new generation of investors

[podcast]

Episode 40, and we’re speaking to the fintech firm that just raised 40 Million dollars last week - Smallcase!

Capitalmind Momentum smallcase is one of the longest-running and best-performing momentum portfolios on smallcase. It has also done reasonably well since its launch nearly three years ago and has been one of the most popular and best-performing smallcases in 2020 and 2021.

Capitalmind Momentum smallcase by Capitalmind

In this episode, Deepak (@deepakshenoy) sits down with smallcase co-founders Vasanth Kamath (@vasanthkamath) and Anugrah Shrivastava (@anugrah_shrivas) to talk about creating a new way to invest in stocks, investment lessons from the pandemic and what’s up next from the Smallcase team.

Summary

The origins and evolution of Smallcase from a basket order optimization tool to a new way to experience and invest in stocks
Similarities and differences from companies abroad like Covestor or Motif
The nuts and bolts of building integrations (and a moat) with 12 very different brokers
Enabling new advisors and researchers to come to the market, offering different business models (% AUM) and exposing new customers to existing advisors/managers
What happens when we have more smallcases than listed stocks?
Addressing the gap between stated returns and actual returns
What’s next? More asset classes and democratizing money management
Their own smallcase manufacturer (Windmill) and the Amazon Basics problem
What’s surprising (or counter-intuitive) about investor behaviour in the past year
One of the top-performing longest-running smallcases
New Capitalmind Smallcases being launched at https://capitalmind-portfolios.smallcase.com

Full Transcript

Deepak Shenoy: Hi, folks, welcome to Capitalmind's podcast, episode number 40, and this one is new. You'll love it. This is about how Smallcase helped create a new generation of investors. Now I have with me the founders of Smallcase, Anugrah and Vasanth. Welcome to the show, guys. So I want to start by saying, you know, Smallcase has been a tiny, tiny company in 2016 to now what is almost like have you Smallcased your portfolio yet? So from there to here, you know, in a big way, we've got news of a funding round that happened. Just what I think the announcement was just about yesterday when you had a 40 million dollar round of investment in your company, which included Amazon as well. So we'll talk about that a little bit more in detail. But, you know, it has been quite a remarkable rise for a company that started in I think when I first met you, it was 2016 in Zerodha's terrace at the time. And I think you guys are starting to operate at that time. And at that time it was quite interesting because we went in...

Deepak Shenoy: You started off really as an interesting take on the basket order of Zerodha's Kite when you invested in a bunch of stocks rather than in a stock at one time, and you looked at the bunch as a basket. So you call that basket the Smallcase. It became it's become a household name now, but at that time it was relatively new. How have you you know, if you think about the basics of Smallcase, ok now, a lot of people understand what I think the path from there from where Smallcase was at that time to where we are today, which is so much more beyond Zerodha, beyond thinking of it just as a basket order of stocks to it's now a publisher ecosystem. And you've got advisors and RAs and as a disclosure, Capitalmind has a momentum potfolio and other portfolios are also now on Smallcase. We have a lot of investors who are using Smallcase to invest in our portfolio. So we're also a biased and therefore happy participating member of the Smallcase ecosystem. But how did it evolve from that time in 2016 to where it is now?

Vasanth Kamath: Awesome, thanks, Deepak. Great to finally be here. Thanks for having us on the podcast. I think, yes, when we started, it was, you know, very much of a flow optimization was as anything else, like what we observed and understood was that a basket order or investing in a portfolio was a very broken and cumbersome process. So you get your list of portfolio constraints from somewhere. You go to your brokerage interface, you invest in it individually, because many brokers didn't have the concept of basket orders. So you, you know, each other takes you at least a minute. If you're executing an order of, say, 20 stocks, it will take you half an hour. Once you've executed them, you need to track them as a separate sub-portfolio in your entire portfolio. Most brokers don't offer that, which is where you go to a portfolio tracking app/spreadsheet, enter all the trades again, track them as a separate portfolio. Tomorrow, the list changes. Your portfolio gets rebalanced, you want to add/remove a stock. You repeat the entire process all over again. So you're using at least three different portals or apps. Broken process takes you a lot of time, very inefficient and cumbersome. So I think the first version stemmed from saying, can we make portfolio investing in stocks easier and post that you know, it was just more natural progressions one after the other. So we launched this workflow. And I think what we realize also is that it's important to give people the set of ideas themselves, like not just keep it open ended, that people create their own portfolios. So the first version of the product we launched in 2016 had, I think, 30, 35 Smallcases or portfolios readymade. You can discover from them, invest in them in a click, track them with a, you know, real time value and then manage them.

Vasanth Kamath: And from there on, I think we've just taken the part that where we got feedback from both from our users as well as, you know, our partners, because the user said next, OK, I would like to add or remove stocks in a Smallcase that I already bought. And we felt that's great. This is an instrument that kind of offers that optionality. So we should build that feature. Then people said, can we customize a smallcase before buying it? We built that. People asked for, can we create our own Smallcase? What was the ideal version? We built that next. And you know, many more features like SIP-ing into a Smallcase, we thought that might not be a relevant use case for this product. But then that's a very strong, you know, use case today for anybody who is buying a Smallcase, they're just buying and SIP-ing into smallcases. So I think a lot of it has also been deliberate from our side, many calls that we've taken, you know, back to back right from making smallcase a common noun right. It's not a platform. It has always been an instrument from day one, because just how we call Smallcases or write smallcases with a lower cas. So all these have been, you know, deliberate calls right from day one. We've realized that we are productizing this vs just and making this a, you know, new ecosystem or a new product class in its own versus just, you know, making a workflow optimization here. So. Yep. I think that was on the feature side. On the platform side, I think a lot more - Anugrah, you want to take that?

Anugrah Shrivastava: Yes. Sure. So, as Vasanth mentioned, in terms of features that we were picking, they were primarily coming from whatever users wanted or whatever partners wanted. Right. But in terms of how we go about building of a product as well as the associated technology, most of the things were deliberate from the day one. We have a third co-founder also Rohan, and he is our CTO. And he takes care of all the technology stuff that is Smallcase. And he had an experience of working in an institutional setup where many similar things used to happen. So that sort of helped us. But from there onwards, then from the day one we wanted to ensure that every decision that the customer is making on the platform is happening on a portfolio level, not a single stock level. Right. And also, at the same time, given that we believe in the open architecture and transparency, he should have an option to go further and see the what is happening with individual stocks. But if it doesn't want everything from a risk perspective and returns perspective, all the decisions should be taken on a portfolio level. Right. And like if one goes and sees our platform, that's how everything works in the sense that you don't search for stocks, you search for portfolios, you search for strategies. Right. The different kinds of orders that you can place on brokers, on single security. Now, here you place on portfolios, whether it's a partial withdrawal or a sip, as was mentioned. Right. All the orders are, again, on a portfolio level. Right. And most importantly, the tracking. Right. Because to give a multi portfolio tracking where the users can also calculate total returns.

Anugrah Shrivastava: And it's not easy because you have to ensure that a lot of other stuff like corporate action adjustment right, if one stock is present into multiple portfolios. Right. How do you ensure that if a corporate action is happening on the stock, you calculate the accurate returns of every every portfolio. On top of it, we also support liquid ETFs, which a lot of advisors on every platform uses for giving to weightages the cash position. Right. Ours is probably the only platform in India that provides you the tracking for daily dividends, which are announced by the liquid ETF right, so that you can calculate the total returns. It includes dividend, which includes, let's say, fractional dividends coming from liquid, and are adjusted for corporate dividends. And all of these things gets adjusted. And we calculate a custom index for the user so that at the end user just comes on the platform, sees that, OK, my index values gone from 100 to 110 and I'm making 10 per cent. But this is all that goes beyond behind the platform in calculating and deriving that return. And so, yeah, that's how we have been thinking about all the decisions on the platform side and as well as on the technology side that finally we have to ensure that every decision user can take on a portfolio level, because that's the best way forward from a user's perspective. After all, if the user is not diversifying, he probably should not be in this smallcase.

Deepak Shenoy: No, no, I think this. I mean, if you look at it as a Smallcase user and I've been both on all of this, is is the simplicity of saying, listen, I just come here and I invest in something which contains a lot of stocks. I mean, earlier to call them, let's say, mutual funds but mutual funds, I think boxed themselves in because they did a few things. Even SEBI said that at this mutual fund cannot be like that and certain mutual funds can't be like this, so the economies of scale don't work out for a mutual fund to do 500 different things. But there are certain things which are maybe short-term or very thematic in nature, specific themes in nature which you introduced as part of the process, and that brought it in. This thematic investing itself has been interesting because it's not necessarily new to India. It's been seen westwards and other startups, the most famous of them, I guess, were a Motif Investing in the U.S.. And Covestor. Both of these had limited success in the U.S. I think, you know, Motif and both were sold. And then they they weren't continued in any meaningful format. You know, but in comparison, Smallcase is taking a different trajectory on its own. And it seems to be in a far better position than any of those were in the past. And you've got you probably looked at those startups much more closer in terms of how they evolved and so on. So what is it about India or is it about the Indian market? Anugrah. You know, if it's since you've seen this market closely. How does it compare and why? Let's say to ask you maybe what are you doing this so different from the Motif and the Covestor spaces that makes it possible for a Smallcase to, you know, grow substantially more in India.

Anugrah Shrivastava: Sure, actually, like a lot of the things that we do are very, very different, and if we specifically talk about Motif, so Motif was providing an end-to-end customer experience, where they were more of let's say thematic investing platform and then they had their own brokerage. Right. Now, what we do is very different because thematic smallcases are just one set of smallcases available on our platform. And it's not that we only provide thematic investments. There are multiple different types of smallcases which are available. And the biggest difference is that we are not a broker. We work with brokers. So as you know, we have 12 different broker partners with whom we have integrated. And the customers of all of these broker partners. Right. Can start their investment journey with the Smallcase. So this is the biggest difference, that we are not providing an alternate to that. If you are a Zerodha user, you cannot invest into a Smallcase, or if you are an HDFC user, you cannot invest into Smallcase. You will have to come and open an account with us. But what we do is we partner with them. We ensure that irrespective of your broker. Right. If you want to have a long term diversified portfolio exposure, Smallcase is available to you.

Deepak Shenoy: I see, so. It's like a combination of brokers may have the customers. Still, you have the investment strategy that I, rather the broker, may just be the pass through in the sense this is where they actually execute their trades for the brokers in general. Some of them have for instance Zerodha, I think, does not even offer like services like achha I'll help you invest in certain stocks or so Zerodha doesn't provide that. The new age of brokers don't. They say, listen, we are transactional platforms. You decide what you want to invest and how much you want to invest, but you solve that problem since you don't know how to invest in and how much to invest in. That comes from a portfolio approach. Some of it is quantitative, some of it is qualitative, subjective. You built internal expertise initially on this process. And I think one of the things that you would do differently is, you know, allow publishers to be part of the platform, which, you know. However, Motif failed quite well, Covestor had a different approach where they said the advisor actually trades in his own account. This is not allowed in India for the RIA process. You can't have your own account being traded and then advising somebody else simultaneously. But so interesting because, you know, perhaps elements that failed in the U.S. don't have a corresponding equivalent in India, like you said, Motif was a broker. The U.S. brokerage platforms are also far more technologically advanced than perhaps when you started off the most advanced brokers were the new age ones, strangely, because the old age ones were making money.

Deepak Shenoy: The new age ones were relatively new. So it's almost as. So, I mean, coming to, you know, maybe from that part of the expertise, you have multiple brokers. You have. Well, I think, what, 10 or 15 brokers now on the platform, You started off with Zerodha, because I think they give and in fact Kailash Nadh in his post recently talked about how he they built this the API for Smallcase, because your use case was the most important thing for them at that time. But they also brought in many changes because the industry started looking at APIs differently. But more importantly, I think Smallcase had a part to play in this ecosystem because, you now, offer a single authentication process that allows people to say, OK, I'm logging in with this broker, let me log in to the broker. Then I can place the order on the smallcase. So, you now, people come to Smallcase, login to the broker, come back to Smallcase, replace the order. This must have been a technological challenge itself. And then you had multiple brokers at different levels of technological superiority or inferiority, however you may have it. And how what did Smallcase do to ensure that, you know, you could work. And I know Rohan maybe a better person to answer this, but I know, you're probably close knit, you know, and of course, you probably played a part in dealing with the ecosystem per se. It's not only a technology challenge per se, possibly also an institutional challenge. So take us through what you know, what what happened over there or how did go.

Vasanth Kamath: Maybe Deepak, I'll also talk about a little bit of the previous question...

Deepak Shenoy: Sure, sure, of course.

Vasanth Kamath: I think, you know, in addition to what Anugrah mentioned, a bunch of factors that actually, you know, differentiate what we are doing versus what's happening or what happened with Motif, Covestor, etc. At that time, when Motif was starting, I think, you know, maybe a decade back. Many of the thematic strategies or exposures you could find on motive you would get as an ETF already over there.

Deepak Shenoy: That's a good point.

Vasanth Kamath: In terms of, say, getting a certain exposure, it was not required that, you know, an investor go through Motif open a new broking account and then invest. Today in India, at least by smallcases. At least one reason why smallcases are finding more adoption/ traction is that some of the use cases or exposures you find on Smallcase are not available in any other form factor, like, for example, you know, momentum. What, you know, you guys have a strategy around that's not present in many other form factors. You also have a PMS around it but apart from that, you don't find, you know, many mutual funds or ETFs that provide a momentum exposure. Corporate governance as a strategy, platform oriented business models. Recent IPOs saying that, you know, that could be an interesting strategy.

So there are a lot of sectoral, thematic, model based strategies that you won't find in other formats, which is where today's smallcase is finding that adoption. I think also now using that same concept, an offering is coming back. So a lot of brokers are building what they call now direct indexing. It's becoming the new playground and there it's for a different reason. It's not just it's in a way connected to, you know, the exposures, but clients have become so savvy that now they're saying, okay, I work at Facebook, for example, I have Facebook stock. Now I don't want to buy the S&P 500 because I already own Facebook, where, say, direct indexing is becoming a way for someone to say, the advisor to say, OK, I'll remove Facebook for you. If that person doesn't believe in a company's ethos or their ESG policy, for example, that should be removed. So these other new, new use cases for direct indexing. I think we've taken a little different approach to building it. But at the core, you know, the offering remains

Deepak Shenoy: Well, you are a direct Lexing platform for all practical purposes, because I think it's like if I give you a portfolio, you've made an index out of that portfolio, give me back becktested returns. You'll give me forward returns as well.

Deepak Shenoy: And I can invest in it. I can SIP into it. It is similar to that. But you're right. In the sense India does not have the ETF depth or even the index fund depth. And, you know, even though there are 400 indexes there, probably about 25 index funds in comparison. I mean, just giving you a number.

But yeah, sorry, but coming back to the other part of the equation, it's I think from a technological standpoint, the challenge in the US for these platforms would be because you US already had FIX for the longest of times, all of them have adopted FIX as a protocol. India, while we've had FIX and most platforms, at least the Omnesys and the FT have supported FIX in different ways. None of the brokers actually exposed it outwards to the population in general to say my end users can use an API. But how did you, for instance, work. I think the main thing is interesting is that it is the nuts and bolts. And so I don't want you to reveal any secret sauces you have. But I think more importantly, you know, as an ecosystem, you got the whole brokerage industry to change. It would have been difficult because who is Smallcase is a question most of the industry would ask. And now it's more like, how do I get on the Smallcase? So every new broker we hearing, the news brokers that are coming or upcoming already talking about Smallcase integrations before their launch. So, you know, how does that work?

Vasanth Kamath: Sure, like you said, Deepak, I think, you know, it's not just a technical challenge bit of it. Obviously, that was a big challenge. But before that, you know, getting them to align on the same vision of, you know, building an ecosystem was the first challenge, getting them to collaborate, because, again, this is a model that was not prevalent at that time. Today, you see financial services, fintechs work together, build solutions together, build products together. But this was 2016-17 where this hadn't started happening. There was, you know, one Bombay. Mumbai is a set of companies that used to operate one Bangalore set of companies, and they never met, you know, work together. Today, we're seeing a lot of convergence, collaboration, but I think in at least in our space, we were the first ones to kind of bridge that gap. And it started I think we started talking to brokers actually, even before we launcheded. We talked to many brokers and told them about what we are trying to build with this concept. I think many of them saw it as you know, you're building out maybe a research house. It's another portfolio provider. It's another portfolios - like you mentioned - you know, many of them have their own model portfolios or their research. So they said, why is your research better than ours? So I think they we didn't maybe articulate the concept very well or, you know, they didn't get it at that point.

Vasanth Kamath: But after we launched with Zerodha, and that's, again, a case where, you know, they we were the first institutional use case for their APIs. So we know, they built it in a way for us today we're still maybe the largest institutional use case for it. So I think once we could launch, you know, after all these features that we talked about went live, it started becoming clearer to other participants in the ecosystem what we're trying to build. As in it's not that we are building another research provider or we are a research house ourselves, but we're building a concept where you need other people to plug in for that to become more, you know, more prevalent, more widespread, more popular. So that's where we needed this to go on to multiple brokers. If you're building a product class, you can't have it on one broker. So I think the next steps were talking to these brokers, articulating what's in it for them, what's in it for us, how does you know both our priorities get met over here. That took quite a bit. The sale cycle wasn't easy. Took us more than a year in many, but, you know, got help along the way. I think people were also realizing that when we started 2015, you would also know. The number of people who used to call and trade were much higher than people who used to place the orders digitally.

Deepak Shenoy: Precisely.

Vasanth Kamath: That started changing at that time as well. So a lot of things went into our favour. But I think, you know, that's where they said, OK, let's take a call on this. Decided to partner and integrate and post that you know, the technical challenges started coming up because like you said, nobody really exposed this. If you look at the top leading brokers, they all have different versions of their own backend or their order management systems or their RMS'. Nobody has a standard one. So either they built it themselves or changed the instance of what say, you know...

Deepak Shenoy: Omnesys?

Vasanth Kamath: ...some of the popular vendors provide, etc. But everybody had their own thing. So we had to really build custom pipes for every integration, either built by the broker, their vendors, you know, by us. But these are custom pipes built for the Smallcase platform. And what we really do there is deploy an entire platform, both the front and back end. So it took us anywhere from six to eight quarters to go live with the broker that's with, you know, a compliance part, multiple audits, demos, etc. So I think 2016 we launched with our first broker, 2018, which is three years back, 2018, july, we were live with still one broker. And today we're live with 12 brokers. But all of that happened in that one and a half year timespan.

Anugrah Shrivastava: Yeah. And just to add to this, this is probably one of our biggest moat also in the sense that when we integrate with the broker, right, today, you might see that there are a lot of new companies who have integrated with the brokers. Or probably with their open APIs. But those integrations work very differently than how our integration works, because we integrate. First of all, it's a deep integration. And whenever we're integrating with the broker, we deploy a custom platform in the broker environment. So, for example, if you go to a HDFC Securities. And there you are investing into smallcases, the URL would be hdfcsec.com/smallcase or something like that. If they're going on Zerodha, it will be a smallcase.zerodha.com. So actually it's a platform deployed inside the broker environment. Right. And it's and it's a platform which is approved by the exchange for the broker. Right. And every single platform that we have deployed. Right. There are 12 different platforms that we have deployed. Each platform offers same customer experience to ensure that when a customer is investing into a Smallcase the experience is standardized. Right. But each platform legally and compliance-wise is a completely different property. And each platform is separately approved by the exchange for that particular broker. Right. Until today, we are the only company in India who has taken this approach so that we can ensure that we are providing a very efficient customer experience, as well as when the integrations are happening, they're done in a manner that we can further on top of it build other custom products like Gateway and stuff like that, which is only possible because we have taken this approach.

Deepak Shenoy: Oh so SEBI actually effectively approves each platform or NSE I suppose..

Anugrah Shrivastava: Yeah, the exchanges.

Deepak Shenoy: Exchanges approved the platforms to do some layer of automated investing, not automated. But I think this is more like you trigger the order.

Anugrah Shrivastava: Not automated. Take, for example, whenever a broker launches a front end. So, brokers also have a front end and a back end, for example, in case of Zerodha Kite is a front end. Right. Their mobile app is a different frontend. And every time a broker launches a front end, it needs to be approved by the exchange.

Anugrah Shrivastava: We build a custom frontend for the broker, which gets approved for the broker by the exchange. Every time we go like with the broker.

Vasanth Kamath: And the reason for this is that you cannot have orders placed to the exchange from a..

Deepak Shenoy: Non-approved?

Vasanth Kamath: ... digital interface that is not approved by the exchange. So like, for example, like Anugrah mentioned Zerodha. So Kite is a frontend, which can take orders. Kite mobile is a different frontend that can take orders. Smallcase is a different frontend that's approved to take portfolio level orders.

Deepak Shenoy: Got it. So effectively what you're doing is you are at least to the world. A place where you have a single interface for placing this, but to the exchanges, the responsibility of actually placing the orders has been given to you because you come through the broker and they have approved the broker frontend interface as one. So, for instance, any broker, like you said, has to get an approval for the frontend. And a third party frontend are very rarely approved independently by the exchange. Like I don't think they have approved any single interface that says, oh, I will connect to any broker and I will, you know...

Anugrah Shrivastava: No, that's not possible also. The current framework doesn't allow that. It has to have different for different frontends.

Deepak Shenoy: ... approvals for each process.

Deepak Shenoy: Yeah you're right. That becomes a moat because now you've got the approvals and the brokers have spent their efforts working with you. This is actually very interesting because it appears like it's a seamless single interface. Still, it's like 12 different teams, perhaps working with 12 different brokers, each of which has, oh, you have to fight the idiosyncrasies, because each brokers says my customer wants... Pehle Reliance dikhao, ya pehle yeh dikhao or whatever, you know, so you have to fight those idiosyncrasies and say, no, no, the common interface is better. And at the same time, have it approved from the broker as a broker frontend interface. So that to the exchange it should not be like Smallcase is the one operating this. Because it is not. You're effectively providing the technology. The customer is the one clicking. And the broker is the one providing the service.

Anugrah Shrivastava: Just to add a little more here, to give credit where it's due. Like a lot of credit needs to be given to the brokers also here, right. Because initially it took a little bit of convincing. But after that, all of them actually bought into the concept. Right. And they allowed us to deploy a standard platform across different brokers. Right. And as well as their compliance teams helped us get to the exchanges and get the platforms approved. Right. So in that sense our partnerships have evolved a lot. Their compliance teams work very closely with our compliance teams when the integration happens. And when essentially we go live with every broker. Right. Their sales team starts selling smallcases, they get trained to sell a Smallcase is they're not selling portfolios. They're not selling something else. They're selling smallcases. So this is this is something that a lot of credit also needs to be given to the Indian brokers, that they were open to a concept that can bring all the brokers together and build an ecosystem out of it.

Vasanth Kamath: And what it's also kind of done is because, you know, we are available and we interface with so many different brokers that are inherent limitations when we start. But over time, we learn something from every different broker implementation that gets standardized everywhere else. Everything is user first. What the user wants on this platform, we learn something new to three other platforms. So together as an ecosystem, it just becomes better for the user because that is shared learning.

Deepak Shenoy: This is great because, I mean, like you said, if you're building a SIP for one broker that SIP...

Deepak Shenoy: ...concept can be then applied. So effectively, if you're looking at the mutual fund world, there's a CAMS, a registrar that does certain things and provides a lot of technological help. So you are effectively another part of this. I mean, a part of the broker ecosystem where their own tech teams may be struggling to do some of these features or they may have done the features in a completely different way. And they have to think of different use cases. There's an RM who's talking to the customer. How are you going to interface that versus in your case, it's the customer directly coming on. And you may have your own smallcases, as you may have third party publishers' smallcases listed on a platform trading through a broker. The broker themselves, like, for instance, one broker actually told me, I love Smallcase because and I won't name the broker. But he said, you know, it's great to sell to people a Smallcase containing Nifty 50 plus Nifty Next 50 or something like that, simply because it is so much easier to understand. And our own research team sends like ten stocks and 15 stocks where people don't. It's not easy for them to convince. It was much easier to convince them to buy in [smallcase].

Deepak Shenoy: I think the point over here is also the fact is, you've hidden a lot of the technology away from both the end-User and the broker because the broker's main consideration will be you don't flood my network with orders. You don't do stupid things like, you know, bring non-KYC customers or use non-KYC kind of things in place. Don't expose me to liability. Create a system which allows people to buy automatically. But at the same time that there is some kind of user interaction, it's not like I've gone and said, take my ten thousand rupees every month and keep doing it. User still has to come and press a button. So they're aware of exactly what they're doing rather than some of the new automated platforms, maybe actually taking a different route saying, no, no, you give us the money, you will automatically invest. Now, that becomes more of PMS functionality. It's not allowed by SEBI do be done for people under 50 lakhs and not with a [PMS] license. But you've not gone there. That's also, I think, a commendable thing, because you effectively provide an execution support, but not automated execution. In a way.

Anugrah Shrivastava: Yeah. So just to further add to what they were saying. Since day one, we have put the customer in the driving seat everything that we have built until now. Because we have heard this from many people that they say that if I don't do abstract a lot of things, why don't you automate a lot of things that there should be automatic rebalancing. Customers will be overwhelmed. You should not give them so many things. You should not show many things. But what we have realized is that the new investors who are coming to the market, or who are starting with the smallcases, are not afraid of taking decisions. But what they want is transparency and tools and softwares to support them while they're taking the decisions. Right. So we are not afraid of telling a user that, OK, your advisor or research analyst has changed the portfolio. Why don't you review it and rebalance? Right. What's the harm in communicating this information? Why does it have to be auto? Because the customer is investing hard earned money. Right. It's probably just going to take two seconds. And today, what we have seen is that people want to control things. Right. They want to learn, understand and then invest. Nobody these days, at least the newer gen and it's not like they just want to go and invest, which is a lot of people think like that, OK, everything should be built in a manner that you just show the amount, the customer should click invest. So that's not how we think this. We feel that he should get to know what he's investing into. He should understand what he's investing into. And if we have to be a little more open in terms of showing him the stock that he's investing and showing him the changes in the portfolios, or like anything to do, we would be not afraid of taking those decisions.

Deepak Shenoy: Interesting, you know, so and I know from 2016 to now, if I look the top five brokers then. To the top five brokers today, today of the top five brokers, three are new gen non advice based brokers. Two, which is Angel and ICICI. Angel also has gone up, I think, only because of its newer technology and framework that it's come in rather than the old stuff. The systems have changed. People have changed. The people of the old said, if I get a brokerage account, that guy has tell me what to invest in. Now they're saying no, no, the broker is one level, advice and thought process of investing is another level. So even we've seen it at Capitalmind, where people are willing to pay for research, which was honestly something new to me. I also taught when we started, it was sceptical. But it's also now they're also willing to pay for our Smallcase, which, you know, if ten years ago I had gone and told people, we've built an algorithm that helps you invest. We will overall not be able to. I mean, we will they would've asked us for the algorithm. They would've said give us the algorithm, and we'll invest on our own. Now it's more like, in the end, can you make it simple for me to invest? I understand what algorithm you have.

Deepak Shenoy: You may be doing it, but it needs to come out in a format that says, OK, there's a bunch of stocks, a bunch of quantities, and you need to be able to invest in those the at the time. This is interesting and leads on to my next question, perhaps. So it's people like us who are providing research portfolios for whom customers were coming back very often and telling us how we can invest in this? And we would say as we build all sorts of little software. Which worked only with one broker because it had an API. Another broker maybe because they introduced an API. The idea is that they wanted to invest in it regularly or invest in it one time. However, they wanted it. But if you have 20 stocks in a portfolio, like you said, it takes 20 orders. Sometimes those orders don't go through. Exactly. And then, like you said, they have to track it because you have to track it as a group. Now, none of the brokers allowed tagging. Not some of them do. But earlier, it was not possible to tag because you may have 50 stocks out of which 20 are mine. So how much of that 20 has done versus the remaining? These are things, the questions that haven't been easily answered.

Deepak Shenoy: But Smallcase has changed that game because it has allowed a person like an RIA to say, listen, you've got 20 stocks to go there, do one, click an you're done. You need to know the amount of money you want to invest. And you know, so and then you want to invest in it regularly. But the point of order is it's hosted on top of the Smallcase ecosystem, which gives two things, firstly, I think, access to the convenience or the workflow. So you reduce the friction in investing in 20 stocks vs. one. And 20 stocks that actually are good. Now you have 40 I think you can do 40 stocks at one time. But the second part is it gives you access to brokers who would otherwise not want to sell your products. You know. Which is quite interesting because I mean, I would love to hear about your thought process on the publisher. How does it work? And also how did it evolve? Did you imagine it in the beginning to be what it is now, or is it remarkably different from when you started as a concept?

Anugrah Shrivastava: Yeah. So let me actually break this into three parts. OK. The first one is more around the regulatory framework and compliance. Right. Because in your question we talked about multiple activities and actually all of these activities have to be segregated completely. Right. A broker's primary function is to execute trades on the exchange. And advisor's primary function is to give advice. Right. Similarly, research and its primary function is to give research. Now, just because there were no bridges between them, a broker sometimes sometimes gave advice or gave research. Or vice versa with advisers will try and find out one or two brokers with whom they can send excels or have an order execution integration or something like that. Right. So if like it was just a need of the time, also, I would say that that has to be a system. Right. Which provides these different capital market participants to offer their services in silos, in a compliant manner, but to still talk to each other because from a customer's perspective, unless and until all of these things are talking to each other, it's not making sense for him. Right. Because he is taking advice from their advisor. But if he cannot execute their advice, what's the use of their advice in the first place? Right. Similarly, if he has a brokerage account. Right. Let's say, as you mentioned, there are a lot of new age brokers who have come up. Right. But if there they don't have a mechanism to help customers, consume advice and execute right.

Anugrah Shrivastava: At some point, customers might not make the right decisions and move out of the capital market ecosystem. Right. So it was essential that firstly, the services are segregated, advisory is providing advice, brokers providing execution, research analysts are providing research. But there is a system that comes and integrates all of them so that from a user's perspective, everything is smooth and efficient. So that is essentially what is the Smallcase ecosystem today. And the the second part, which is essentially the platform part, is - how do we build a solution that we can take to investment advisors or research analysts and help them integrate with the brokers? Right. That's the publisher platform that we spoke about. Right. So it's like a solution which can solve all the business needs of the publisher or a research analyst, investment advisor in one single go from automating their portfolio creation, management process to issuing rebalances and ensuring, like giving them a dedicated website, handling their subscription management, their payments, their invoicing, the client communication, all of these things comes together into one single platform. If you don't have this platform and I'm sure that you have been in the industry for a very long time, you would know that if you have to serve 200 customers manually, you might need a ten member or 15 member team just for that. And scaling becomes a herculean task. But with a publisher like platform that any investment advisor, research analyst can serve, up to 2,000 or 20,000 customers, but with just 1 or 2 employees, because his primary job now completely moves to giving the advice or the research. Right. And coming to the last part of the question, which is the technology required to power the whole thing essentially. It goes back to the discussion that we were having in the last question, that we have built these custom platforms for each of the brokers. Right. But given that now we have access to each of the brokers, we can bring together everything into a standardised format. This is something what you can like. If you have to give an example or something like a UPI right, different banks are very different. Right. But UPI is just a standard protocol. There's a standard set of hoops to which you can't talk to everyone right now. So we also have a solution like that today: there's a standard sort of set of APIs through which you can talk to every broker right now. The same solution we couple with the publisher platform, give it to the advisor so that their clients can execute across different brokers and the same solution - now they're in a position to give it out to other non borking entities and help them access the broking space.

Deepak Shenoy: This is an interesting point, Vasanth you were going to say something?

Vasanth Kamath: I think what Anugrah mention. It didn't start that way when we talked about publisher ecosystem and due to the platform, et cetera, it started user-first to say that - we knew it right from the start, that at some point, because like I mentioned earlier, we are not a research house ourselves. We started with the idea of saying we'll create this new product class or instrument class, where there will be different strategies at some point, more manufacturers or creators of these strategies as well. So it came from that aspect that, you know, the user should get a wide catalogue, which is where you can just do it as one manufacturer's set up, you will need more manufacturers to play. That was one use case. Another use case was when we we went live with say some of the brokers who had their own in-house research also, they had portfolios, they had model portfolios. I think, you know, they came from the perspective that, oh, you said you're not going to, you know, do research or compete on research. So let us also put our portfolios up there so that what we were doing, you know, manually had to start becoming a lot more platform oriented. There needed to be a, you know, the interface, a CMS for them to actually use to publish their own Smallcase. That was one use case. So from their perspective, it just became workflow optimization, because if you see how broker research works, they give model portfolios and give say, you know, single stocks and calls and all of that. Obviously, every research team or the broker would want their customers to buy a portfolio because it makes sense for new investors to take portfolio exposure vs individual stocks. But the workflow was horrible because we talked about 20 stocks and you'd have to buy them individually.

Vasanth Kamath: What you get is an Excel sheet. To convert that into your portfolio requires hours and different platforms. So that was one use case. Another use case started happening. What Anugrah mentioned that it started streamlining operations for a lot of research firms and advisories where they did not have to have an army to like for every 50 people there, didn't need to add two more people to their team to manage their operations, collect contract notes, you know, check whether the client is investing all of that tech can solve it that much easier, you know. For example, many research analyst advisors today are now starting to charge a percentage based on the investment value because now they have insight into the customer's net worth in a Smallcase or a portfolio earlier. You could never get that, as you were just giving out the research. You would not know how much the person is invested. So you would have always to charge a fixed or a flat fee. It started as many people. It's actually, you know, the whole creator economy thin that we're seeing is happening in fund management. Also, emerging managers are starting with the Smallcase form factor because the publishing platform has to start running their business. Established managers are coming to the Smallcase platform to target retail. So today it's a lot of use cases. Obviously, we didn't envision all of this at the start. Still, now it's become, you know, a very vibrant kind of community where different use cases, applications and people are coming together to create this whole catalogue of Smallcase.

Deepak Shenoy: And I think, in fact, the whole software world is like that you build a software and you don't know how your customers use it and you find out are they using it in the strangest ways, and then you kind of build on top of that and then you get your like, for instance, you you are also the Plaid for our UPI, for the industry, providing the APIs and that came about because you providing publisher APIs and you had the backend integration with this. So new doors opened simply because of use cases you haven't imagined before. Very interesting, because, I mean, I think overall, you know, the software is eating the world in a way. And you can see this literally live in the industry, in the broking industry, and so on. The old traditional brokers are worried that they're going to lose market share simply because they don't have the technology to attract and retain customers. And the new brokers are saying, listen, everything is table stakes. If you need integrations, we have to be there from day one. But I think from a user standpoint. So I'll come back to where though this thing is. So I'm thinking, you know, you have a user comes in and says - If they go to, say, capitalmind.smallcase.com, there's potentially 1-2 Smallcase that we offer. And they know maybe about Capitalmind. That's why they've come there. But Smallcase a bigger, broader, you know, industry term of sorts. When people come to Smallcase, they might be looking at 100, 200, sometimes 500 different Smallcases. I'm just saying that, you know, it's grown over time. So the problem that said, I don't know which stocks to select, therefore give me a portfolio, has now become I don't know which Smallcase to select. Give me a full give me give me a figure. So what are your thoughts on how you kind of try to address that problem? Because do you need an advisor to choose which Smallcase and that I mean, you know, maybe ecosystem that's actually preferable at some level, but it's the same way that you need an advisor to go into mutual funds. The mutual fund selects 20, 30 stocks to invest in or 50-100 stocks. Where do you see this problem of too much happening in the Smallcase ecosystem?

Anugrah Shrivastava: Sure. So actually, the advantage of having an ecosystem approach versus a single platform approach is that there are multiple entry points. Right. And you yourself mentioned one of them, for example, if you are an advisor. Right. Who just wants to talk to his customers. Right. And is not interested in any other jazz. Right. You don't want to be on the Smallcase app. You don't want to be on the Smallcase website. You don't want to talk to any broker. Nothing. You have 20 customers. You just want to advise them. Right. We have a solution for you because we have built our systems and architecture. After all, they're very open in nature. Right. So we can give you a customized solution where there is a custom website created for you. In your case, it is Capitalmind.Smallcase.com. And any other advisor's case, it would be Advisor.Smallcase.com. Right now, the clients directly come there. If you're done in just one portfolio, they see only one single portfolio. And then they execute. This is one example where an advisor is running his own business without getting distracted from anything else that's happening in the ecosystem and other use cases. Let's say if a broker is onboarding users onto their Smallcase platform. So as I told you that for all the 12 different brokers, we have 12 different platforms that we have built and deployed. Right. So let's say if a customer is coming into the Smallcase ecosystem from HDFC Securities Platform and HDFC securities, they have selected a bunch of five to 10 different smallcases, which they want to onboard their customers. Right. So the customer will only see those five or 10 Smallcase and he even he will never actually see 500 smallcases or 300 smallcases. That's right. So that becomes the second touch point right. Now. For example, if an advisor is tied up with, let's say, a broker or a research analyst. Right. And he has selected a particular portfolio to get the user into the Smallcase ecosystem in that case. Also, again, the user sees only one single Smallcase. Right. So the only use case when the user is seeing a lot of the smallcases is when they are directly coming on to the Smallcase app, which is, let's say, one of the five different ways in which you can enter the Smallcase ecosystem. Right now, we have built tools and solutions through which users are very easily able to categorize and differentiate between different smallcases. And obviously, in terms of improving the customer experience, many other things still need to be done on the platform.

Anugrah Shrivastava: Today, we have tools like Find me a Smallcase, where you can start first by only looking at asset allocation as Smallcases as if you are new to the capital markets ecosystem. Do not take a lot of risk. You start with just that, right. Then let's see if we want to take a little more extra risk. Right. Then you can see large cap Smallcases right. So we are trying to break down the journey and make it easier for the customer in the most natural way in which the actual investing should be happening. You first build your core through an asset allocation portfolio. Then you add a little Slow-Moving satellites through your largecap portfolios. Then you go into the mid and small cap section, right so the platform is built and designed around the core satellite philosophy that if a customer is not being brought into the ecosystem by an advisor, by a research analyst, by a broker or by a referral, then he follows this natural progression. So again, that problem is not faced by him. So this coming coming from any of the four channels that I mentioned initially, he's never actually seeing all of these Smallcase. He starts in a very focused manner. But if he's coming on to a website or app, there is a natural core satellite approach that the customer goes through and essentially discovers different Smallcase.

Vasanth Kamath: And also there a lot of ways, you know, how people invest and Smallcase as it exists, I don't think it's like a structural design issue that, you know, you if the number of Smallcase of the catalogue keeps increasing, it's going to get tougher. With any investment product right now, the number of stocks will keep increasing. But how do you select stocks? One is, you know, a research provider, an advisor like Anugrah mentioned say you have principles or philosophies around selecting your stocks, etc. A friend tells you a stock, someone in your network tells you you do your research. So there are so many ways to kind of select the right investment products that this we would have to adapt to all of them, like today, you can create your own Smallcase and share it, like till date I think the number last time we checked last month was like twenty five lakh people have created and shared their own Smallcase and other people have saved and started investing in them.

Vasanth Kamath: So that's one way that people actually, you know, discover and decide. So very tough to kind of have a one ideal approach to portfolio building. As a product class our attempt or at least our focus is towards ensuring that all these use cases or applications can be available on the platform. And it's it's not easy, as in, you know, we discover new ways of this happening every time we would know for, you know, the workflow that you describe, that advisors actually tell you which Smallcase to [invest in, but..]

Vasanth Kamath: That's that's what that ecosystem needs to expand their new workflow. There's a new channel. How do we get there? So I think, you know, we're still barely scratching the surface of the different use cases. And like within a Smallcase. Also today, we have stocks, ETFs. If we have more asset classes, it could evolve into financial planning. So there's just so many things that we could do with this construct. So the number of Smallcase will keep increasing. I think, you know, we just have to figure out how The user finds them.

Deepak Shenoy: To be fair to you, I mean, there's the next level. I mean, I'm just throwing things in the air, but you can have friends on them and on the platform where you can say maine invest kiya. The other person says, OK, this is great. I want to hang out with my friends as well. So I mean, all those right now, it is more Share My Smallcase would be likely to share the link or you send an e-mail from the platform. But as the established Facebookish/friendish. You know, it's complicated. Kind of algorithm is possibly another thing that I mean, it's the rules are endless. And like you said, it need not even be stocks. It can be anything that is bought and sold on the platform [from the] listed universe, you know, us, because we know we're all you know, you can't sell toothpaste, for instance.

Anugrah Shrivastava: Yeah,

Deepak Shenoy: That'll be a a little, you know, too much. OK. I think this is interesting from a perspective of a selection of a Smallcase. I think Smallcase selection is is one part and it's a useful part to solve. But the next part of it is always like the performance part. So I think a lot of times and we've talked about we've had agreements and disagreements on this in the past. But the interesting thing is the performance itself of a person's Smallcase can be different from the marketplace, similar to the investor in a mutual fund, can get a different return from the mutual fund itself simply because of when he invests, how much money he puts in in different times. You put in 10 rupees, it becomes 20 but after he puts 100 rupees at the second time that hundred and twenty grows only to 130 or 140. So the return depends on how much money he puts in when and all that. But also about the timing of the investment in the Smallcase, by nature, Smallcase has to give you a price so it uses today if you're investing it, lose of it based on the calculation of the previous displaces. But I think you have some thought processes coming up that you will say, why don't you tell me the returns? If I had not invested on the yesterday's price, if I had invested on today's price instead, if because actually, I don't know. I mean, I can't get yesterday's prices. And in a bull market like now, unfortunately or fortunately, maybe for the universe, prices run away and as more popular and popular stocks for, for instance, the traditional thing is if a stock is mentioned, then on a certain TV channel, that stock, by the time you can even get to the market, is up five per cent. Similarly, if a stock is, you know, very popular, Smallcase, the chances are [similar]. So how do you handle these performance differences between customers, actual returns versus the model portfolio returns? And how do you or how do you envisage this going forward

Anugrah Shrivastava: Right. Sure. So first, let me just give a little bit of context [and a] bookish answer in this and how we have designed the whole thing. So there is a what I shouldn't be calling it benchmark, but there is a portfolio or an index that is a like model portfolio, what you are referring to. Right. And that advisor has created right now. Different people are coming and subscribing into this portfolio. This is somewhat very similar to let's say there is an index that's a nifty 50 or a nifty next 50 on which ETFs are getting built right now. ETF is one of the ways of taking exposure. Similarly, we can say that the Smallcase is one of the ways of taking exposure. Right now, it is not like an ETF is replicating the index without a cost hike. There are different ETFs in India with different expense ratios. Right. Sometimes expenditure just goes completely off. So we have seen multiple times. So there will always be some cost associated with that replication in any of the form factors across the globe. So it's not like there can be any solution that can exist that can replicate the exact return given by either an index item or report for just impossible.

Anugrah Shrivastava: So that's the textbook issue. There will always be some cost associated with replicating a strategy right now in case like in Smallcase is like from our perspective, like the way the whole system or solution has been built is very, very personalised. Right. When you invest into a Smallcase, we create a custom index for you. Right. You are picking your advisor, right. At no point in time the system is going and telling that this is the Smallcase you have to invest in. This is the best advisor offering the best performance or anything like that. Right. So because the system has been built to give that personalised solution to the investor, the costs are also very personal. Right. Because you are replicating the strategy of your choice at the time you are. And you think probably this is like some people let's say if you are issuing a rebalance on a Tuesday night, some people might be doing it on, let's say, on Wed Morning and some might be doing it on Thursday evening. Some people might be doing it on Monday evening. So. Right. So it is all a reflection of what essentially you are doing. And there is no standard suggestion that we give that, OK, you have to execute the next day. You have to, because there is like we have to give it to the users also that like everyone is not free at nine 30 in the morning

Anugrah Shrivastava: Or 3:30 when the market is closing and they will execute when then essentially they get their time right now because of this, there would be certain differences from the model portfolio, which if it works for the users, they would continue this, continue taking the services of that particular research and user advisor. And if it doesn't, obviously they will think that, OK, this is not something which is working for us. However, at the end of it, it is still far, far, far better than going the old way of taking an advice from a PDF or in an Excel and not even being able to execute, at least in this case. They can take advice from a licensed professional. Right. And execute easily and understandably. So we have come 99. There's still that one per cent remaining, which probably at some point in time, now. The question is how do we ensure that we come up with more tools so that they can understand what could be the cost if they're executing at different points in time and if there is a way of bringing this cost down. Right. But at least today, the investors are far better place compared to what they were when the Smallcase was not there

Deepak Shenoy: Absolutely. And I also think it's a little unfair to ask you about costs because the cost could be spread across various things, like, for instance, we were talking about this just a little bit earlier, STT. It's a cost for the customer. But if you invest in a mutual fund, the mutual fund pays, STT, but does not report that STT is part of its total expense ratio. It's not. It's allowed not to report it. So therefore, your expense ratio sounds like point zero, one point zero five per month. Those ratios are not true, it's actually 0.25% or 0.3% which we can see in the difference in returns. But, you know, reported returns are reported Costs are very different from actual costs. And I guess what you're also saying is, in your case, the slippage between the model portfolio and the actual return is based on perhaps timing the the price of the security itself, which could be extremely volatile. For instance, if it goes into a Smallcase and at the same time, a big news has come, what can you do at that time? The stock price will differ from model portfolio. So,

Anugrah Shrivastava: Just to add to it a given that obviously this has been bull run for the last one or two years. But like we have seen like downturns also. So like, for example, since 2000, I think since Jan end of January 2018 till middle of 2019, Like mid and smallcap section was horrible right. There were times when customers used to come and say, OK, I think we should execute two Days after The rebalance because the stocks are falling.

Anugrah Shrivastava: Right. So like it's just a given that different people have seen different or have different experiences on the platform. Some people have seen the stocks go up because they have come in the last year. So then people who have seen over the last three or four years understand that, yes, there will be slippages. Still, at least in five to 10 years of time horizon, I am much better if I take a portfolio, diversified exposure under the guidance of a licensed professional versus doing everything by myself. So I'm okay taking those. But just because there will be times when they will be positive slippages, there will be times and there'll be negative slippages. Right. This question only comes in when essentially the time horizon is very short. Right. Because if you're talking about later one year or two year and there is only, let's say, a bull market, then you can come and complain that because of the slippages, my returns are not good. Right. But if you take a ten year horizon rate, so the same effect that is happening on, let's say, negative side might start happening on the positive side also, we don't know. So in the long term, the customers are still far, far, far better placed on the Smallcase platform just because those are diversified portfolio exposure under a, let's say, licensed professional. That's it.

Deepak Shenoy: No, I think it makes sense, although I think eventually is, for instance, already standardised, the performance reporting of mutual funds at last in 2020 for PMS Providers also they said please standardise your reporting. Basically, we have to report in a certain way. Time Weighted Returns and all that. And I suppose eventually they will impose their laws on what they will put in. So that's sort of big. And hopefully there'll be more transparency then less, I think, Smallcase is very transparent. PMSes are also to a certain extent, transferrin mutual funds have a layer of non transparency. You can't exactly pinpoint how much was spent in X vs. Y. Even if you looked at that annual report. So.

Anugrah Shrivastava: Yeah. Like just because we're talking about the transparency, the Smallcase is this structure where at no point in time either the adviser or the platform is coming in contact with your money or your shares. Right. Your shares always go into your demat account. Your money's either always in your brokerage account or your bank account. Right. So that's the beauty that there cannot be a fraud. It's impossible to be there because the shares never move out of your account and the money never goes out of your trading or brokerage account. That I it's just that because it's a bull run and probably just keep going up and having these discussions

Deepak Shenoy: You have the other side also because somebody's trying to sell and the stock is on lower circuit and things of that sort of performance. Who at what point do you take it, for instance? I can say that listen a stock is on lower circuit. You said you at 100 but by the time I get to sell it is 60. How come your performance is so different from mine? And I know that that's the fundamental question you cannot answer. And we faced this challenge ourselves as a research provider, where we say listen we'll stop. We won't even record the place until you are people are actually able to execute. But you can't do that in an automated platform, because how do you not have a price when the stock has to be sold? I mean, it's it's just meaningless for that. So I think, you know, evolutionary parts of it also have to come in that people should not take returns at face value. They should go back in and say, listen, there's a range of. Right. So

Anugrah Shrivastava: Yeah, Not just education, I think we as a platform also would have to evolve so that we can also start showing these things to the users.

Deepak Shenoy: So, for instance, I mean, like with what we've done is at the PMS, we have control over the portfolio, so we control the execution, but still we see a difference between our model portfolio execution and each plan. Even if you take the same risk in return of every single customer in a portfolio, you find that some person has got, say, 15 per cent or 10 per cent or 12 per cent returns, about 14. So the system may tell you that on average, everybody has made 13.5. Some people have thought about. Some people have got below the guys who got above will not say anything. It will not look at it, but it's the person's. So you'll get those questions. And if the market falls the same other site. Yeah. How come I have fallen more than the market when you know somebody else has fallen less? And it's it's an interesting problem to solve. But as you said, it's the platforms responsibility at one level. It's a customer's responsibility on another level because everybody has to go through the cycle once. You know, it's like if I wrote the same answer in a question paper and I give it to two different teachers, they will mark you differently. And you can always ask me, I wrote the same answer - unless it's Maths. When you, you know, answers is pakka. Here it's grey and the grey is you did 9:31 vs 9:32 to the other guy. It's, you know, it's the part of the game. But that's, you know, and I think this is where it becomes interesting because now you've got scale, you've got a lot more people on the platform. And I, I know you I'd love to hear all the numbers part from you guys, but also investors in your company having a decent I started with maybe smaller rounds and so forth that now you've raised 40 million. That is you know, there is 40 million USD which is 300 crores is such a big number that it almost astounds me that, you know. But I mean, congratulations, firstly on this round and it's win. I know it's been a labour of love for you to have built this so far and taken it. And but obviously you have like what you've done until now is 1X and what you have in your mind is 10x so what's next? What's the what where does it go from here? Do you. Where do you see yourself? Are you. I'll let you answer that, because I think this is more about you than it is about my thoughts on it.

Vasanth Kamath: Thanks

Vasanth Kamath: I think one thing that we've been fortunate to have from the start has been, you know, great people around us, be it, you know, with our team, with our partners, and as well as our investor partners and shareholders. Right, we've got a good mix state from venture capital funds, private equity players, you know, to institutions who've been in the space for a long time, to even individuals on the cap table who have actually been financial services entrepreneurs themselves. So, you know, we've got a great mix of both institutions and individuals who believe in what we're doing, you know, have firm conviction. And the model that we're also choosing to do so very, thankful for that. I think, you know, that's something that has helped us a lot along the way with this capital specifically sure, you know, there's multiple things to be done on a short term basis, continue enhancing the platform, build more capabilities, add more channels, keep growing the ecosystem, I think. But if I look at it from a very, you know, more Long-Term perspective, I think few things. One is I think we've been very focused on, you know, what the mission has been right from the start. And that's not to do everything or, you know, just look at it from saying, OK, can we do this, can we do that, etc. But it's been just focused towards one thing and we build the best investment product clear for, you know, investors. And I think that's that's what we'll continue building. That's where we're seeing at least, I think, a change in that layer. And that's what we thought, say, five years back when we started out saying with more investors participating in equities, with more of their portfolios going into equities, the product layer needs to change that hadn't been for decades.

Vasanth Kamath: So I think that's where we'll continue focusing on Smallcase. This is one type of investment product tomorrow. There could be other investment products that make sense for an investor's portfolio. And I think, you know, that's what we'll keep focusing on. The second thing I think we're very proud about this is that we've been able to build a very distinctive brand in the space. So, you know, it's something that is a collaborative, inclusive brand versus saying it's either this or that doesn't. For example, Capitalmind offers Smallcases Smallcase are available at Kotak Securities. So it's you know, that brand has become very interesting because in the last two years, we've seen so many new investors come in and Smallcases have become, you know, like a primary gateway for them to access stocks and ETFs. So I think continuing to invest into that brand and, you know, make it much larger is also going to be and it's not just about monetary or capital investment right? We built that with a lot of love and care. I think that's where we think, you know, that's required to take it to the next level. I think, you know, this capital also really helps.

Deepak Shenoy: I, in fact, I don't know if you want to share any numbers, but I know you're you've you've gone to what number that you've told be. I mean, if you can, you know, tell us about how many people have now from the time to started to where you are now. I'm not sure if this is something that you want to, but I would love to hear those as well.

Vasanth Kamath: Sure. So, say, several, you know, the investor with the number of users. I think we've grown really fast over the last couple of years. You know, it's a five year journey for us till date. Obviously, many, many more years to go. But in that five years, we spoke about it like the first three years were just laying down the pipes and building the plumbing. And last two years, we've enjoyed the platform, the asset that we built, and hence, you know, continue to grow. So today, how we look at it also in measure is that if there are today, I think the number is is somewhere in total to 2 to 2.5 crore active demat accounts when we like three years back. That number, I think, would have been a 0.5 crores. So we've grown 4-5X from there. And how we think about it is that the penetration of Smallcase into, you know, portfolios of investors who are active in the demat construct should keep on increasing more than the absolute number for us to keep growing on. So that number today for us is like one in seven, one in seven different account holders use a Smallcase and so 15 per cent (32 lakh) users on the platform. And that's grown by 7-8X over the last one and a half years. Like, I think we started 2020 with seven lakhs. That's that's been, you know, the kind of we've been fortunate to have built the plumbing and the platform so that when,

Vasanth Kamath: More interest came in, I think we could just enjoy getting them onto the platform as well.

Deepak Shenoy: This is great. Yes. Anugrah, I mean, your thoughts as well, on where you are going

Anugrah Shrivastava: I think Vasanth summarised it very well, but just one point is why we have been able to offer a very smooth and efficient experience in the equity space? Right now, I'm not talking about the capital. The only equity space is because the underlying stocks were liquid, and the ecosystem in terms of brokers were open to let say let us do this right. It might have taken a little bit of time to get there, but it finally happened right now today. That is not the case in other asset classes in India, for example, if you look at the bonds - they are not very liquid and are not accessible. They might be liquid for institutions. But from a retail perspective, perspective. Right. And they're not very accessible also. Right. But I would say that we're not there in terms of whether the ecosystem around bonds is mature enough to build a layer on top of it. Right. But with the capital and the customer base that we have now, I think we might be able to explore and do some things there - if at all, we can do that, then essentially that asset class automatically gets added to our whole ecosystem. Right.

Anugrah Shrivastava: People will be able to directly do it from their demat accounts via logging in by their brokers. Advisors will be able to create portfolios around those securities through our gateway. Non broking entities might be able to sell Fixed-Income Securities. And there's just one asset class that I and there could be different asset classes that we can explore and probably add. But we are sure that what we want to add to the platform is that the experience should not go down for the customers. Right. Because we think that so many new investors have picked a Smallcase. Right. As their default mode for starting that investment journey is that experience is best in class in terms of what they get, let's say, either probably on a Swiggy or Flipkart or in Amazon. There is no compromise on experience just because you want to invest it. There is the technology experience should be world class then and then only the ecosystem will also expand and people will also come in. Right. So if through more capital, obviously we have more resources available to replicate some of this in the other asset classes, that's something that we would be like. We are very interested in exploring.

Deepak Shenoy: This is actually quite cool - I can see potential, there's U.S., non India. There are bonds like you've mentioned. There are so many of these new investment products. There again, you need a portfolio approach, not a single - ek bond kharenein se kya hoga type thing, I think, you know, is always like, well, ek bond hi kharedna hain then you might as a do a fixed deposit and I want to do portfolio design. So these are, I think, quite interesting and no on the publisher. And because you've you've got you've got a lot of publishers on the platform. And to the extent that you can, you've kind of highlighted, you know, your process of getting them on board. Do you see this as more a platform that you want to build as a curated platform of advisors or people who offer solutions or more like a generally platform where any RIA can come and present? Because when you curate you automatically, I say, " Oh, I have curated, I have seen. But at the same time, you it leads to this lack of discovery of the newest, people who don't have enough pedigree or, you know, so we came from nowhere. So if anybody, the next person could also come from nowhere in a way. And therefore, you know, where do you see yourself then - more democratising? Or do you think more curation is in your future?

Anugrah Shrivastava: Sure. So actually on the first part, right, I think in terms of doing the basic checks, SEBI is doing the job, so we don't want to go there because I'm sure the regulator is looking at all the requirements, be in terms of capital adequacy, be it in terms of education and everything else. So one thing that we are absolutely 100 per cent sure is that we want to only work with the licensed professionals who the regulator has allowed to operate in the ecosystem. Right. And but after that, there are multiple ways in which we today also deal with them and tomorrow also we might deal with them. Right. Today, as I was explaining to you that an advisor can choose or a research analyst can choose to be completely away from the ecosystem and operate in a silo so that the system is flexible enough just to give him that solution, that he can just get the website that everything works normally. Normally, it integrates with all the brokers, and he can just directly get his clients on to that particular website. Right now. The second part is actually where there are different advisors, where we can essentially be on the lookout to tell if certain good people are coming in, how do we ensure that they get the attention, they get the highlight. So that essentially we have some thoughts, but haven't decided implementing anything yet onto the platform. But that's something which is very, very interesting, because, as I said, was also mentioning that like Vasanth was mentioning the whole creator economy is what's happening in the fund management also. Right.

Deepak Shenoy: Correct.

Anugrah Shrivastava: There are so many new upcoming and excellent advisors and research analyst at who might not have the, let's say, legacy of 10, 15 years or let's say AUM to back their analysis or portfolios, but they also deserve to be like their research, also deserves to be shown to the users. So, yes, our systems and algorithms will have to evolve so that we can do some bit of heavy lifting on that site. But we haven't started doing that yet.

Deepak Shenoy: This is they know, because I guess one of the things that you have and Covestor, remember, had this problem of people gaming their systems, and I'm not saying that anybody's doing it right now, but as you get more and more popular, I'm sure people will try to use a Smallcase to increase the prices of stocks, of certain stocks and buy and make it popular. And it'll be your Covestor the people involved, as you say, that, you know, which has been an inordinate amount of time trying to remove away people who used to recommend only illiquid stocks in the platform and know. So maybe Smallcase has a role to play, I guess,

Anugrah Shrivastava: So,

Deepak Shenoy: Or that.

Anugrah Shrivastava: Yeah, but the biggest advantage that we have that anything like that cannot happen is that nothing happens automatically in the system.

Deepak Shenoy: Correct. It's.

Anugrah Shrivastava: Everything for everything, user consent is required. At no point in time it can happen that either an advisor or your friend or someone has suggested something and something automatically gets executed. Right. And all of these are retail investors who have gone through the subscription process and have put in a small amount of money every time and they're executing a trade. The same RMS and OMS systems are, let's say, of the broker is put in place and they're authenticating every single trade. Right. So it can never happen that on one single click, crores of oney just moves from here to there. It's impossible

Anugrah Shrivastava: Because if, let's say, 10,000 people have invested into a portfolio, it means 20,000 clicks, but 10,000 different investors at probably same number of time instances. It's just impossible that such gaming can happen in a Smallcase Ecosystem.

Deepak Shenoy: I think also, you know, from a from a perspective of also from an aspect of looking at the customer, you have your Smallcase of your own so Windmill Capital, I think is part of Smallcase ecosystem. And I think the Smallcase in a promoter company, if you may. But also you have Publisher Smallcases. I know that Amazon is an investor, and I'm going to, you know, shamelessly say that this is like an Amazon basics problems or Amazon Basics does. So you compete with your own other vendors on the platform at some level. How do you handle this conflict? Because in your own mind, you must be at some point saying, which one should I give impetus to and how do I do this in a meaningful way? How do you handle this tension if you may within Smallcase?

Anugrah Shrivastava: Sure. So I think the first thing that differs from the analogy that you're using is when we started this Smallcase ecosystem right. To begin with, it was not an ecosystem or the marketplace or anything like that. To begin with, the only set of portfolios available on the platform were created by our research team. And the reason to have a research team in the first place was that when we're starting right. Just like no, like it took a lot of time to convince brokers to come onto the platform. And it also took a lot of time to convince advisors to come onto the platform. If advisors are not there on the platform. For the first two years, we didn't have a ready product to take to them. Right. Then if if the customer they're coming onto the platform, what will they invest into right there from that perspective? It said if it was, there was no other option but to but to ensure that from day one, there is quality research available on the platform and there are different sort of use cases also which are available that the customer can try out. And that was the very reason why we put up a research team right now in the very first place. Let's see if we move from 2016. We come to 2020, right. Actually, the total number they get to talk about the percentage of users who are investing into Windmill created a Smallcase have reduced

Anugrah Shrivastava: Because in 2016 it was 100 per cent right. Today it is very, very low compared to that rate on the quantity quantity. We have actually gone gone out on boarded all these advisors got them on to our platform and contributed probably 60 to 70 per cent of their business directly from us. Right. So that's still contracting. So that's essentially the timeline has played out. So today, if you look at it from let's just get a cross-section, you might see that or you have your own subsidiary. So how do you differentiate or anything like that? But if you look at from this perspective and context. Right. So you would understand why it was required in the very first place. And how then it further changed how we are actually looking at all the advisors or research analysts were there onto the platform. And today, also, I think in no means we differentiate between any in-house or external publisher in terms of how users experience them, how users subscribe them, or probably how users explores them. Right. And in terms of the Smallcase, there's also that our in-house research team is created. Right. I don't think there is any use case also which matches that, if let's say, you are creating momentum as Smallcase or similarly momentum smallcases are coming out from the, you know, in house research team or vice versa. So from that that perspective, I think we are very, very sorted in the sense that the job of the in-house research team is always in that there are differentiated use cases available on the platform. And job of the ecosystem is to ensure that we get more and more creators into the ecosystem and ensure that everyone is fairly treated.

Vasanth Kamath: And I think basically the crux of what Anugrah said also was if this was a big deal, we're going to put the Amit Shah meme which says Aap chronology samajhiye. But I think it's different from Amazon basics, because they're talking about products that are commodities right. And that's where Amazon basics or Amazon as a platform looks at the reviews, or at least people claim that Amazon does this. You know, they look at the reviews that are the price points and then unleash competitive offerings that you can replace with this. But see, I think, you know, for Smallcase is the more relevant equivalent would be, say, Spotify originals or say Netflix originals.

Deepak Shenoy: Yes.

Vasanth Kamath: Is where it's a lot more subjective. It's not a commodity, kind of a service or an offering. So. And that's where what Anugrah mentioned the last point where it's a very different philosophy of research or product building itself. We have a certain set of products. We continue to believe that there have been so many instances where users have come and said, hey, why don't we have this Smallcase? That doesn't mean that we will create the Smallcase, because we might not have the capability or even, you know, understand how to actually create that product where we go to the right manager and say, you know, this is a request from users getting popular. Do you want to, you know, build this kind of a solution? So it's a very skill based input, which,

Deepak Shenoy: Vs..

Vasanth Kamath: You know.

Deepak Shenoy: Yeah, no, I mean, I guess I think, you know, I don't think, you know, publishers who have done enough research on that. They won't look at this as oh - You know, they they're competing with us. For instance, they're only like, even in Swiggy, you can go and buy from us. So you get an or from a non Swiggy kitchen and you may not notice a difference because the food choice is yours in the way you are. But the challenges roughly are the same in the sense because it's your own kitchen. Do you give it a preference? Oh, right. No, I don't think that's the case within our lack of like, you know, listing

Vasanth Kamath: There also in the Swiggy example. The output or the service to the user is looking for his food. So that's very commodity in the sense. If it's a burger, maybe Swiggy could differ based on a burger versus a McDonald's one. But it's still you can replace one with the other. Here your portfolio can be made up of so many different things. That's why I'm equating it to something like music or say entertainment, where, you know, it's very subjective. It's not like you watch a thriller that means you don't like this. Which is where...

Deepak Shenoy: Now it's on Netflix, originals is possibly not more attractive than the Disney original, Different things. I mean, it doesn't make sense. I think that's a that's a good point.

Anugrah Shrivastava: Like the list to add to what Vasanth mentioned, right? The retail participation in the capital market in India is so low. And on top of it, if you just think how many people are actually taking advisory services? I don't think any advisor should be thinking about competing with anyone. It's a matter of how you expand the ecosystem.

Deepak Shenoy: Honestly, the matter with the 30 lakh crores in equity mutual funds are together 35, like 15-16 per cent of the whole ecosystem of the whole GDP. Vs America which is 110 per cent. So just as an example, your your your ability to and the number of investors that invest in stocks versus other things is different. They classify ETFS as a different universe altogether. So India is so small that the incremental differential between even one year ago to now, one year ago, I think in the last four months, from April 2021 to July 2021, more than 35 or 40 lakh investors have been added to brokerage accounts, and many more new brokerage accounts have been created. Now, people would have been happy with ten lakhs in one full year and now in 4 months you have 40. The incremental difference is so high. Doesn't mean, like you said, it doesn't matter even if you compete.

Anugrah Shrivastava: Yeah.

Deepak Shenoy: So kya phadak padhta hain were in the end was my market is growing at the rate that it doesn't seem to matter. But it's interesting because I think, you know, you've you also now have another way for people to participate. You said, OK, I'll create a Smallcase publisher and I can make it happen. But let us say my business was not a whole gateway ecosystem in this. The idea of the gateway is to take the Smallcase platform that you build, the fact that you've got all the Broker connects in place and fuse them back into a solution that says, listen, you don't need to have a Smallcase to execute with the broker. And you have now made it into a bunch of APIs is not. Again, we are going to be, I think, as Capitalmind also is going to be a participant in this ecosystem. But the idea here is that you could use Gateway as a as a way to execute trades without actually having to integrate with each broker, but to directly provide a solution where you may have the, like you said, I think the content of the material to be able to execute the trade, because a customer wants not to leave the context which you are in the Web page, the app or whatever, and directly by Gateway, I mean, is an interesting offshoot, is perhaps related to how you've built the brokerage platform products. Still, also now it gives you the flexibility of of going bigger. So, you know. Well, how aware please explain, you know, how the Gateway Ecosystem works, what it means to Smallcase going forward.

Vasanth Kamath: Sure Deepak, but I think just taking a step back here, it's not just the idea was not to say, can we get executions everywhere. It isn't for the sake of it, because today we're seeing Gateway used at maybe 30 different properties, and there are clear use cases and a lot more partners are coming in and wanting to integrate the APIs. But I think the idea came from the seed that for exchange traded products to really flourish and more people participating in them. You can't restricted to just the brokers having only on the brokers shelf spaces right? Because if you look at, say, products which are household brands, no financial products, be it, you know, gold would be a digital gold now with mutual funds of lending as a feature, as many people say. So all of that has been possible because it's not just one type of entity that can offer these products. It's just become easier for any platform property entity to start offering. So that was where, you know, the idea for Gateway came in saying, as we discussed, there is a compliance restriction for a stock or an exchange traded product to be transacted. It has to be done in a broker approved platform.

Deepak Shenoy: Correct.

Vasanth Kamath: We had integrated with all the brokers in that manner. Now, we had the opportunity to actually obstruct that transaction capability into APIs and SDKs that then could be used by anybody else. And this happened in different ways. One was, you know, we ourselves needed it for internal use cases that we're building a bunch of properties and apps that we're thinking of doing this when they were talking to brokers to give them the APIs, the brokers themselves said, you know, we've done this for multiple quarters already with Smallcase. They're providing, you know, they might have it. Why don't you ask them? So, you know, the idea came from multiple different viewpoints, and that's where we started building Gateway. But I think it's been now 18 months since we built it. We were getting those use cases today. It seems very obvious, you

Deepak Shenoy: Yes.

Vasanth Kamath: Know, that. Yes,

Deepak Shenoy: Yes.

Vasanth Kamath: You do. But do have to become a broker, rather use the Smallcase gateway or the broken gateway they have built. But at that point, we had to create these use cases or create the demand for these use cases. For example, money control is a great example. Like this is happening in other industries, other areas where content meets commerce. So money control has data, information, and stock pages. It also has stories around certain stocks or can you transact from that itself. Another use case, for example, say in distribution platforms or advisory platforms, only offer mutual funds earlier because that was what they could offer if they had to offer stocks, ETF, Smallcase, they had to become a broker. But now using the gateway, we're seeing, you know, many mutual fund distribution platforms actually expand their offerings, become a multi asset class and offer advisory or distribution platform themselves, you know, used by so many other different use cases. We are seeing use cases like gifting stocks, gifting Smallcase is, you know, social investing. So it just opens up the possibilities. But more importantly, it also just extends Exchange-Traded product distribution from just one set of entities, which is brokers to anybody, you know, who has a digital property and has a use case for offering stocks and ETF.

Anugrah Shrivastava: Yeah. So just to put what Vasanth mentioned, in a nutshell, I just try to think how many people would be ordering food if every time you had to log in to HDFC Bank or and ICICI Bank to just put in place your order through Swiggy or anything, that it is just impossible to imagine life. Right. And because payment gateways or similar, solutions exist on top of it multiple use cases have been like have come right. Similarly, if direct stock investing are in general exchange traded products have to grow or if multiple use cases have to come. Right. It was just a matter of time that this had to happen, because without this, it's just impossible for all of these use cases to flourish. But now with this anyone who is trying to build a content platform or an advisory platform or anything to do with stocks or ETFs in India. Right. It becomes straightforward for them to integrate a small, let's say, a solution in a week. And they have all the transactions available to them. So just the way you can place an order like from Swiggy, irrespective of that, you have an account with HDFC, ICICI or Kotak. Similarly, you can buy a stock from money control, any other property integrated with Gateway, irrespective of whether you have a broking or demat with Zerodha or HDFC or any other partner brokers.

Deepak Shenoy: I know Anugrah, if you think about it, I think this is basically the the in a way, it also works to a point where you're saying you don't have to be a Smallcase provider, you can be a direct stock so for instance, I could say we are writing about the stock. You can buy it online here. Now, I'm not actually giving you a recommendation to buy it. I'm actually saying you can transact if you want. And if you want, you can click on this and then it'll tell you something. You have to enter how many stocks you want to buy and sell. But that ability now exists across the globe. So I don't have to do any broker integrations. I can do this through Smallcase Gateway. I automatically get access if you add three other brokers to your platform tomorrow. So earlier there was a protocol called fix. I mean, it's still there. U.S. brokers are more technologically advanced. They have a fixed kind of protocol to do the same thing. But Fix has limitations. It's complicated. It's not easy to understand. Plus, most Indian brokers will not want to expose their OMS or RMS risk management systems or order management systems of fixed protocols directly to end customers. They understand it to a certain extent, but they don't know how to deal with the complexities of these systems. In that context, Gateway, so, in fact, if I were to get it right, I think Gateway is more a product where you get a provider and this you need a technology to do this, or it's not going to be like go to a web page and say, yeah, I know, I want to buy this stock. The Web page has to integrate with your API, but at the same time, it provides that ability to scale this much further from where we are.

Anugrah Shrivastava: Yeah, actually, just to add to it, right, there are both types of solutions which are available. OK. So, for example, if someone is like a little technologically advanced, they can integrate with the gateway solution. But let's say if you are a person who just writes block. Right. You don't have any technological understanding of how to API integrations and everything. We have solutions for them also in the sense that, for example, just the way you can embed a tweet onto the blog or a YouTube video into the blog. Right. Similarly, we have widgets where you just need to put a url. And the stock called the Smallcase automatically gets embedded. Right. And that doesn't let any technology indication is just to copy paste of a URL.

Deepak Shenoy: Fantastic, and I know this is great because I mean, it's just like a little javascript that kind of sits and does something on this on the side.

Vasanth Kamath: It sounds like both use cases, not just the transaction bit, but with this widget you get information as well. Now you can embed recommended a Tech Mahindra stock widget. You can see what today's prices, what its ratios are. The graph etc and then choose to buy it. So it just makes

Deepak Shenoy: You

Vasanth Kamath: Accessibility

Deepak Shenoy: Maybe, too. Yeah,

Vasanth Kamath: Much easier.

Deepak Shenoy: So in feel like we go on some of these websites and say, Tech Mahindra, then it'll sure plus point two per cent, because that's what it is today. And then it provides contextual information. This is a great actor. This is very interesting, though, coming to where you are. I think you've grown to a certain extent and you've seen a lot of investors come onto your platform. There were seven, you know, maybe 32 lakh people now. So it's grown to many people, possibly some of them are new investors, some of them are older. And perhaps as we come towards the end of this Podcast, I want to ask you guys about as much as you brought more people into these markets for the first time, some of them and some of them for the first time, I Smallcase investors. You've probably come across many investor behaviour insights, which is what they are thinking, how they're doing things. And a lot of the old myths getting broken that only new people buy Smallcases. In my experience, a lot of the people that I know who are seasoned investors are also using Smallcase to invest are only young people use, I say you know, when they're seasoned, they're most likely old also. We've also seen behaviour change from the way they think about panicky fall markets, Panicky rising markets, how investors used to behave, vs perhaps as a Smallcase, how they're behaving so now. Two questions. First, what are the investor behaviours you've seen over time? And how do you with the Fundraise and the thought process that I Smallcase has of where do you see Smallcase changing this behaviour over time and perhaps what advise you would have to your customers?

Anugrah Shrivastava: Sure. No, I think the first thing that I've noticed from other users or investors is whether they are the first time investors or whether they are the seasoned investors. Right. The single most important thing when building a financial product or an investing ecosystem is to ensure that you are transparent. All right. People love transparency. They want to know where their money's going. They want to understand how the whole thing is working. Right. Because it's like if you if you talk to anyone who was sort of like who sort of built products or any any any seasoned person who has built multiple products, and sometimes you get to hear from them, that you need to abstract a lot of things. You need to hide certain informations. You have always to give the customer just, let's say an execution bit. But you don't have to tell them what exactly is happening, how it's happening and stuff like that. Right. But what we are seeing is that the customer behaviour has completely changed. People want to understand what's happening. Right. Because if they're understanding, it gives them more confidence on the decisions that they are taking. Right. And unless and until they have that, they don't have the confidence in the decisions they are taking. Right. It becomes tough to justify the investment decisions later on in life.

Anugrah Shrivastava: Right. Because, for example, you don't if you're buying something because a friend has told you or let's say you got something on a telegram chat or you saw a YouTube video. Right. And in just that moment, you end up doing something right without even understanding what's happening. Right. Then it's going to be very difficult to justify the decision if it doesn't turn out to be the right decision. Right. But in our case, what do we do is that we ensure that we present all the necessary information. Right. Customer can understand where the money is going, what is the philosophy, who's managing the portfolio, and what are the stocks they're buying? It might take them a little time to understand all of these things. But actually, it gives them the confidence to stick with their investments. And the most important thing in the capital market, as you also know, is to stick with your investments and let the system work. Right. So this is something that we have noticed and probably is like not the way traditionally products have been built that you like. It's fine to expose a certain amount of information and let people take few decisions. You don't have to abstract all the decision making from them and just give them buy or sell stuff.

Deepak Shenoy: This is great, Vasanth some of your thoughts. I mean, you know, before I ask you more on this further.

Vasanth Kamath: Many interesting Observations, I think, you know, there are some surprising ones, but maybe expected ones like earlier, if there were a correction in the market intraday, you would see people leaving. But today, you know, those turned out to be their days where there's maximum inflows into the platform, etc. So,

Vasanth Kamath: You know, some of those observations, For example, this was interesting to me, primarily from, you know, younger folks were entering the markets, but there's a strong FOMO. So even if, you know, they're losing money on their investments or, you know, there is loss, they're just happy to be involved. So like I'll tell you where I've seen this anecdotally. Also, like people you know, newspaper headlines say nifty crashes or sensex crashes. And now there's a feeling of involvement that even there's some impact on me directly. vs earlier it was not there. So those are some ways that people are reacting. But even I'm an investor. I think we're all investors. So I think hit in behaviour we also face the same thing in this. I face this when I have a stock portfolio outside Smallcase and a Smallcase portfolio, you know, portfolios within Smallcase. And it's really tough for me to you know, there's a lot of loss aversion or attachment to certain stocks. It makes it tough for me to take decisions. I delay it, I'm not sure, you know, maybe I just keep hoarding stocks because I don't want to sell them right now. I feel that maybe there's still more movement, etc. But when it's for the Smallcase, whatever the strategy manager dictates, you know, you have to stop the stocks or add three stocks. It just become super simple to stick to that system. So I think, you know, that has really changed, at least my personal investing behaviour also where it's really tough to do that if you have, you know, a stock portfolio that you are managing vs with Smallcase, is it just more easier because you're abstracting it with a portfolio view, so you're taking portfolio level positions was a single stock level position. So that's really helped me. At least you're going to stick to a system, be a lot more disciplined.

Deepak Shenoy: No, this I think, you know, this is so true because a few days ago, this particular stock, there was one of our portfolios which we said, okay, let's exit. And our exit after that, like the market is, you know, we're going to slap you in the face every day in our days. So we get this stock going up another 15 per cent. So then somebody calls me and says, look, I didn't exit. I said, very good. And he says, okay, no, no, no. What should I do? I said, OK, there's only two choices here because we've exited the stock. So what do you the best you can do is if it falls 10 per cent from here, please exit. So the next two days and maybe just fortunate now, because I'm on the good side of this equation, is the stock does fall 10 per cent. In fact, it falls 15 per cent in one day. Now, it has crossed to a point where, you know, it is low. It has fallen 15 per cent. The per cent comes back to me and says no, the following 15 per cent. Do you think it's a good you know, I can hold it. I said, no, we it's out of our portfolio. You also decided that you will get out of the 10 per cent. But you know or, you know, the person is stuck because because they didn't take the action. When we had suggested it, they took their own action or became their own stock.

Deepak Shenoy: Now they're having the same problem exiting that stock, because personally, it's that fight between the two. But if they followed the portfolio, they would not have had all these questions. How all these questions there will be miserable. The stock went up and doesn't feel good that it's back down 10 per cent. But this outsourcing of discipline, I think Smallcase does it beautifully. Because you're saying that, listen, if you want the returns of this portfolio are giving you are the philosophy that this portfolio is giving you, then you have to follow the portfolio. You can't question it. And then then now you're in no man's land or no woman's land. In many case. That's something that we haven't talked about. But I think, you know, what will be interesting in the overall sequences to see how the discipline pans out in the future worked out as much as I said that. And, you know, I know many people are looking forward to Smallcase being one of their gateways to investing in the future. So what advice would you give your investors and as part of your investment? I guess even I'm one of them as an investor. I'm a publisher as well. But at some level, you'll have more insights because of the collective than the individual. What advice, based on what you think, would you give to investors in general? Not stock specific, of course. But this is in general in Smallcase in the days ahead.

Anugrah Shrivastava: Yeah,

Anugrah Shrivastava: So I think a big problem this is that a lot of people have already spoken about this, and this in general applies to everything in life. But it is it becomes essential when you're talking about capital markets, is to have the right expectation setting. Right. Because if you are expecting doubling your money and in say a month! I don't know where you can can do that. But definitely stock market is not the place for this. And one interesting thing that has happened is that over the last year, right. A lot of new people have come into the market and markets have also performed extremely well. Right. And most of the people have made good money. Right. If they have started little in the last one, one and a half years right now, the good part is that at least the first experience they have, like they had with the market, is positive. They're going to remain in the market for some time, which is always good. Right. But the bad part is that the expectations might have been set wrong. For example, if some certain portfolios were launched in the last year, if you will, look at their cagr, you would see, oh, they have generated 40 per cent return and 50 per cent return rate, and some investors might have come in with that expectation rate. So it becomes imperative for investors to understand and as a platform for us to communicate to investors that this is not going to work in the long term.

Anugrah Shrivastava: Every like no equity portfolio will give you 40 to 50 per cent return every year for the next five to 10 years. That's just impossible. Right. So to set the right expectation that in the long term, I will be generating 15 to 20 per cent and there will be 13 years, and that'll make good money. That'll be certain years when I might I might lose money. Right. It could be minus 20, minus 30 per cent. But if I can generate 15 to 20 per cent in the long term, I should be happy. Right. This is one of the essential things that many people who come in the last year and a half, years and years to understand, because if they're able to understand this and follow a systematic approach. Right. It will ensure that they remain in the market for the longer term. And if they're remaining in the market for the longer term. Right. Then they don't need to do anything. The market will do things for them.

Deepak Shenoy: Perfect, in fact, I mean a little disappointed Anugrah we have 50 per cent returns in six months, and you're saying that I can't extrapolate it for the next few years here, but it is a real problem because people come to us and say today's market is down two per cent. The portfolio is not performing

Anugrah Shrivastava: Yeah.

Deepak Shenoy: two days and two per cent? But I'm also saying that we have seen five years or maybe one or two years in the past, five years market has rarely lost money in India. But let's say one or two years, I'm sure there'll be negative returns. And like you said, it's important to moderate expectations and that low double digits is the more important thing than this every month I'll get 10 per cent - You find those Youtube videos, I'm sure you've seen them as well.

Anugrah Shrivastava: Yeah.

Deepak Shenoy: And it cringes because you say that, okay, you know, everybody will learn the lesson eventually. But, you know, hopefully that happen soon. Vasanth your thoughts and your advice.

Vasanth Kamath: I think

Vasanth Kamath: A couple anecdotal observations I've seen is one is very cliched, but then, you know, people generally start with one thing and then do only that for some time, like whenever they're starting with investing their money. I think, you know, either if it's crypto, it's crypto. If it's derivatives it is derivatives, the intraday, it's intraday. But then they do it for some time, thinking that that's the only thing to do. And then eventually they undescended, you know, there are other asset classes. This one asset class or this one way of investing will not be sustainable over the long term and then move to actually having a portfolio of different asset classes or however cliched it may sound. I think, you know, practising asset allocation right from day one makes a lot of sense, just purely because it does not then, you know, impact with your psychology, your mental balance or behaviour, et cetera, because you are you will do that at some point today for every asset class. There are such new, interesting ways actually to access that asset class. It's not the old ones, like real estate is not just buying land or buying a house. There are so many more liquid, less, you know, more cost effective ways to actually access it. It just makes sense to start doing that from day one.

Vasanth Kamath: Second is, I think, you know, there's this whole class of people who are not participating in equity markets or, you know, even investing in their money in the bank account. And I think that's kind of what all of us as a collective ecosystem are just struggling. But as capital markets, every asset class ecosystem is dealing with this, trying to get money from the bank accounts into, you know, better yielding asset classes. And that's where a lot of people who actually start investing. There's this now almost like weird obsession with, say, fees in the sense once they do come in as an if you're not investing at all, then there's no concept of fees. But when you start investing, you know, many people suddenly move to the other extreme of saying that, you know, how do I get the cheapest way actually to invest in something? And I think that's a little penny wise, pound foolish in many cases, purely because you have to contextualise fees and an index fund can give it to at say five bps great. But then that can't be your entire portfolio right? Your portfolio has to have different risk return profiles, products, strategies, and exposures. And all of those will come with different fees.

Deepak Shenoy: Cost.

Vasanth Kamath: Or pricing models as well. So contextualise fees with the kind of exposure and the kind of return profile you're looking at. Many people just say, OK, let me just get the cheapest product and that'll do the best job for me. Works in certain cases, doesn't work in many cases. So I think that's something that many people have a weird obsession. I don't so think that not doesn't make sense for most decisions.

Anugrah Shrivastava: And just to build on this, though, this is something that a lot of other users also keep asking that why don't you give an option to compare different Smallcase managers based on fee rate? But that's not the right thing, because fee has to be one of the inputs in your decision process. It cannot be the sole criteria that you are actually deciding what you want to invest in. Right. So that is why we want always to ensure that people go through the different managers. They understand their philosophy, they understand the different kinds of products which they offer. And it's not just to plain simple fee comparison. And that's something that people need to follow across. Like even if they're not investing in a Smallcase is if you're investing in mutual funds or for that matter, you're using a PMS route to access the capital markets because it fees not just the only criteria. Right. Do you have to look at the returns? Also, you have to understand the philosophy. And you need to align the philosophy, the managers philosophy with your philosophy then and then only you need to go ahead, like just not look at looking at any single thing is wrong. You look at the returns. It's wrong. You look at the fee, it's wrong. You just look at the philosophy. You don't understand the risk-return profile. And that is also wrong. So investing is an involved process. And people need to understand this. That whole concept of gamifying investing ensures that everything is available at single click. Many people might come in, but a lot of people will fall away also. Right to be. People need to understand that if they want to grow their wealth, they need to give at least one hour a month minimum that much expectation. They need to set in. Just to understand where their money is going, setting the right expectation, following a system. And then let the market work for them.

Deepak Shenoy: I think I'm with you because we offer a fee-based Smallcase, and to a large extent, our fees are sometimes disproportionate to the amount of money people invest. We also get perplexed, but then realise over time that they will invest more money if they like the product. And therefore, over time, that product will actually be a smaller percentage as a fee to their overall portfolio. And this is obvious to some people. This is not obvious to others. I mean, for instance, what you end up paying for is partly education and partly transaction. So it's it's the sometimes the market can charge you a fee for the education that is sometimes many times more than any fee you'll pay.

Anugrah Shrivastava: It's actually better if that doesn't happen!

Deepak Shenoy: Happen. Yeah. I mean, the Problem is, you know school of hard knocks, people learn. Unfortunately, if you don't learn on way, you would learn the other. But I mean, the critical point, because I think that was directly telling people is moderate your expectations don't think last year was a blueprint for the future. I hope it is not, because from a pandemic perspective and return perspective in the market/

Deepak Shenoy: We don't want you to think this will come back in a meaningful way in the future. The other point you're saying is that asset allocation diversify right from the beginning, because you may love the markets today, but tomorrow, who knows what kind of things will come. So that's the other point that I think it's an essential thing. And Smallcase allows you to do that. So there's there's an inbuilt systemto do it. And of course, the last thing is don't obsess over fees being the criteria or even I would say even anything that takes away from the investing thought process is a distraction. So the fees are one part of it. You can't say that every fee applies to everything. It's an input in the whole process, but you shouldn't be 100 per cent of the process, even with an index funds in India. We have seen the lowest expense ratio index fund is often not the one which has given you the best correlated return of the nifty so that even the best index fund cannot be judged based on its reported expenses. Therefore, you cannot equate it to a process of process with the fees per se. This was great! In fact, it's been a long time. We've gone through recordings once, twice, and I think this has been great to have you guys here. Thanks so much. Oh, please. You know, any last words? And thanks so much for having come here.

Anugrah Shrivastava: Thanks Deepak, for inviting us. It's been great. And I think the parting thought would just be that people should not wait for things to happen. Right? Life doesn't work like that. Investing also doesn't work like that. You have to make certain decisions, but just ensure that you have the right sort of information while you're taking the decisions. And like another thing, we look forward to a lot more Capitalmind Smallcases on the platform.

Deepak Shenoy: Yes, definitely,

Anugrah Shrivastava: Definitely.

Deepak Shenoy: I'll talk a little bit more about that first Vasanth please Thanks again for having having been here and patiently waded through the process.

Vasanth Kamath: No, no, thanks so much, Deepak It's completely our pleasure to be here and, you know, look forward to doing this again some time here,

Vasanth Kamath: Hopefully with a lot more new learnings, a lot more updates as soon as possible.

Deepak Shenoy: Absolutely. In fact, just as a disclosure, we have more portfolios coming and hopefully all of them get integrated in one place, but there is a low volatility. Smallcase as well, apart from our momentum, Smallcase, and they'll be there is a passive Smallcase. And so much more. I mean, I'm so excited about the whole Smallcase platform that we want to put a lot of more stuff into it. And we also, of course, on Capitalmind.Smallcase.com We have Capitalmind premium where we have a lot of the discussion around the portfolios and so on. We have a special fee for a special discount for the podcast. Listeners at CMPODCAST is is our is our discount code and we will enable it on the platform, so I'd love to hear all of your thoughts, whoever you are, who is listening as well to come in, please, or tweet. I, I, I don't have the, you know, Twitter handles of Anugrah and Vasanth right away, but they're on Twitter as well. The Smallcase on Twitter that I know @SmallcaseHQ, I think

Deepak Shenoy: Is it is on on Twitter itself. And I'm @deepakshenoy, we're @capitalmind_in. I love to hear your thoughts. It's been great having look at Smallcase as a gateway to your investing future. And I hope and I wish you Smallcase and all of you as listeners and a great investing future. Thanks for listening!

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