Understanding the Importance of Rebalancing Your Smallcase Investments | Smallcase How To Guides

by Navyaa

Published On June 6, 2024

In this article

The stock market is far from static; it is a dynamic and ever-changing entity. The market experiences constant fluctuations because it is influenced by many factors such as economic shifts, political events, company news, and overall investor sentiment. Consequently, even after making an initial investment, investors need to continuously monitor and adjust their portfolios to maintain their desired asset allocation and risk profile. In the context of Smallcase, which allows for easy investment in pre-made portfolios, this ongoing adjustment process is known as rebalancing.

The Basics of Rebalancing

Rebalancing smallcases is the process of reviewing and adjusting the stocks and ETFs in the portfolio to ensure that it remains current with the new developments in that theme or strategy. It is done considering fundamental factors like company earnings, stock price fluctuations, etc., and then finalizing the right set of stocks. For instance, if a stock is performing well, investors may want to increase the amount of that stock to a larger percentage of their portfolio than they initially intended to maximize their profits.

To rebalance, you may sell some of the assets that have increased in value and buy more of the assets that have decreased in value. Regular and constant rebalancing helps investors stay disciplined and keep their investment strategy on track.

When to Rebalance Your Smallcase Portfolio

Rebalancing your Smallcases portfolio is crucial to maintain alignment with your expected Compounded Annualised Growth Rate (CAGR) and risk tolerance . Here are some key considerations for deciding when to rebalance:

Changes in Market Conditions

The stock market is highly dynamic, influenced by numerous factors ranging from political events to company operations and investor sentiment. Even minor fluctuations in these factors can have a huge impact on stock prices and overall market growth. Therefore, it's crucial for investors to remain active and monitor market conditions and macroeconomic factors that could affect their Smallcase holdings. Staying informed allows investors to make timely decisions and decide when to rebalance their portfolio effectively.

Deviation from Target

When investors allocate their assets among various stocks and portfolios, they usually have predetermined targets in mind. However, market fluctuations and the performance of individual stocks can cause deviations from these targets over time. For example, during turbulent market conditions, asset prices can fluctuate significantly, leading to overexposure to certain sectors or assets than intended. Rebalancing helps investors realign the portfolio to the desired allocation percentages by buying or selling some stocks.

Performance Review

During a regular performance check, investors may observe that certain stocks or assets are underperforming or failing to meet their investment objectives. In such scenarios, it may be necessary to replace them to minimize risks and maximize investor returns. By conducting a thorough performance review, investors can identify weak spots in their portfolio and take the necessary steps to rebalance the portfolio and optimize its performance

Liquidity Needs

Investors may also want to rebalance their portfolio depending on their liquidity needs. If they have short-term financial goals or unexpected expenses, they may need to adjust the portfolio to generate cash. In such cases, rebalancing allows them to sell assets strategically to meet their current needs while also still maintaining the overall structure and target asset allocation of their portfolio.

How to Rebalance Your Smallcase Portfolio

Who rebalances the portfolio?

It is normally the responsibility of the Smallcases managers to push rebalance updates for investors to view. However, the investor is ultimately responsible for implementing the rebalancing updates for their specific portfolio. They regularly conduct comprehensive analysis and research to understand the performance of various assets within the portfolio and identify any deviations from the desired allocation targets. Moreover, the Smallcase managers take advantage of their industry expertise along with a combination of quantitative and qualitative tools while taking their rebalancing decisions. This ensures that adjustments are made in response to both short-term market fluctuations as well as the broader investment philosophy and long-term strategic goals.

How to Rebalance Your Smallcase Portfolio

Rebalancing a smallcase portfolio is a simple process and involves the following steps:

  1. Before initiating the rebalance, ensure that you have received any relevant notifications or alerts regarding the update.

  2. Navigate to your Investments page on the Smallcase platform.

  3. Locate and click on the "Rebalance" option wherever available on the Investments page.

  4. Once you click on "Rebalance," review the update provided. If necessary, you can customize the changes by clicking on the "Customize" option.

  5. After reviewing and customizing the update, confirm your decision to proceed with the rebalance. This action will prompt you to review and place orders to make the changes.

Read this article to learn more about Optimal Rebalancing Frequency: How Often Should You Rebalance Your Momentum Portfolio?

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Impacts of portfolio rebalancing

There are several factors that an investor should keep in mind while rebalancing their portfolio as they can have an impact on the overall returns.

Tax Implications

Portfolio rebalancing can have tax charges of around 15% when selling assets which lead to investors earning capital gains. However, rebalancing can also be an opportunity to implement tax-efficient strategies, such as tax-loss harvesting, to offset capital gains and minimize tax liabilities. Under this strategy, when an investment is sold at a loss, the loss can be used to offset capital gains from other investments. Thus, by carefully managing the timing and execution of rebalancing transactions, investors can increase their after-tax returns.

Risk Reduction

One of the primary impacts of portfolio rebalancing is risk management. By constantly realigning the portfolio to their desired target asset allocation, investors can ensure that their risk exposure remains within their acceptable levels. . Through rebalancing, investors have the opportunity to sell off underperforming or risky investments, thus reducing potential losses. Additionally, active investors can use rebalancing to their advantage in order to capitalize on growth opportunities created by recent developments.


Over time, market fluctuations can cause the allocation of assets within a portfolio to become concentrated within a single sector or industry. This increases the impact of market fluctuation and leads to higher volatility. Rebalancing allows investors to modify their portfolios, ensuring that they maintain exposure to a diverse range of industries, sectors, and markets. By maintaining diversification, investors can improve the overall stability and returns of their portfolio.


In conclusion, the process of rebalancing a portfolio is an essential aspect of effective investment management. As the financial markets continually evolve and respond to various economic, political, and social factors, maintaining the desired asset allocation and risk profile requires continuous attention and adjustment. Moreover, through the use of new technology and the adoption of rebalancing strategies investors can develop an efficient investment process. Thus, rebalancing can help investors to achieve their long-term financial goals and adapt to changing market dynamics effectively.

Read these related articles on rebalancing your portfolios:

  1. Optimal Rebalancing Frequency: How Often Should You Rebalance Your Momentum Portfolio?

  2. Understanding Portfolio Rebalancing in PMS: A Crucial Strategy for Wealth Management

    Read these comprehensive Smallcase How To Guides to understand all you need to know about Smallcases:

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    2. Features & Benefits of Investing in Smallcases

    3. 8 Things To Check Before Investing In A Smallcase Portfolio

    4. Should You Invest In Smallcases? Are Smallcases a Good Investment?

    5. Understanding the Importance of Rebalancing Your Smallcase Investments

    6. How to Use Existing Demat Accounts to Invest in Smallcases

    7. How To Choose Between Different Types Of Smallcases

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    16. How to Partially Exit or Sell Individual Stocks in Smallcases

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    1. How do I know when my smallcase has a rebalance update available?

    You will receive an email notification when a rebalance update is available for your smallcase. However, these updates aren't automatically applied and you need to visit the platform and manually apply the changes to your portfolio based on the update.

    1. How often should I rebalance my portfolio?

    The frequency of portfolio rebalancing varies depending on individual investment goals and market conditions. However, it is generally recommended to rebalance monthly or quarterly to ensure that your portfolio remains aligned with your desired goals and risk tolerance.

    1. Are there any costs associated with rebalancing my smallcase portfolio?

    There are no additional transaction costs when rebalancing your smallcase portfolio. However, you should consider any brokerage fees that may be incurred when buying or selling securities as part of the rebalance process.

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