TABLE OF CONTENTS
Video Walkthrough
This article explains why a smallcase rebalance is required and how to do it.
Watch this step-by-step video guide to understand how to rebalance a smallcase.
The Need for a Rebalance Buffer
Rebalancing a smallcase correctly and on time is an important activity to keep the portfolio up-to-date and in-line with the investment philosophy and methodology. But however, sometimes rebalances may contain orders whose values are quite small and may not be viable to execute due to some constraints. Hence, the current article deals with these constraints and the order execution logic in smallcase.
Rebalance Order Generation Buffer
Rebalance orders which follow the below logic would not be shown in the rebalance configuration:
Order Amount (X) <= 500 OR Order Amount (X) <= 1 % of net worth will not be shown in the rebalance configurations.
Note: The order amount does not include the brokerage and other charges to be levied
The above has been done to avoid multiple transactions of low ticket size which would attract depository participant charges (which would become a significant proposition to the smaller ticket sizes).
The following example will attempt to illustrate the changes made:
Earlier, for larger net worth portfolios (for example, 10 lakhs), if a rebalance consisted of 10 ITC stocks ( worth Rs 2360) and 1000 TATAMOTORS stocks (worth Rs 3,30,000). Both these orders would get placed.
Post the change in the calculation, the above ITC order would get rejected as the order value worth Rs 2360 is less than the 1% of 10 lakh (or Rs 10,000). Only those order items such as the TATAMOTORS order which satisfy the above criteria would be placed.
The following should also be noted:
This order value check is only implemented when the rebalance has a buy or sell of stocks in which the user has already invested in and the rebalance calls for addition or subtraction of a small quantity of that stock. This check however is not applicable when a complete sell or a fresh buy order for stocks is a part of the rebalance.
This check is also not applied when the user tries to customise the rebalance by him/herself.