What is Rebalancing?
Rebalancing a smallcase is the process of reviewing its stocks/ETFs & their weights to ensure that it remains true to the underlying theme or strategy. Rebalancing is done considering fundamental factors like company earnings, stock price fluctuations, etc and narrowing down on the right set of stocks.
Rebalancing is done by the smallcase manager after thorough analysis and research. The frequency of rebalance varies with every smallcase.
When you apply a Rebalance Update:
– Stocks/ETFs which were removed from the smallcase, were sold
– Stocks/ETFs which got added, are bought
– The weighting scheme of constituents is moved as close as possible to the prescribed weighting scheme of the original smallcase
In some cases, where the manager thinks that the smallcase still sticks to it original theme, it is also possible that no changes are done during a rebalance.
Are rebalance updates applied automatically?
Rebalance updates are not applied automatically. You would be notified via email, push notification or in-app notification when an invested smallcase has a rebalance update available. You can review the changes and apply the update in 2 clicks.
In case, you miss an update, it will be available for you to apply it until the next rebalance update is sent or until you click on skip.
What happens if I don’t rebalance my smallcases?
Rebalance is recommended to update your smallcase. It helps you stay true to the original intended idea of the smallcase. It tries to keep the returns close to the CAGR of the smallcase & could be helpful in protecting you from the dynamic nature of the market.
However, if you skip the update, the composition & returns for your smallcase may vary from the original.
What happens if I apply the next rebalance after I miss/skip one?
When you skip an update but apply the next one, your smallcase is updated according to the most recent rebalance recommendation from the manager. It is like skipping a software update on your phone but installing the latest update. However, the returns & CAGR might not be the same as the original smallcase.
Hope this helps you stay true to your investment goals!