What is the ideal composition for a smallcase?

Every smallcase has an ideal weighting scheme, defined on the “Stocks & Weights” tab. For created/custom smallcases, you define this while saving your draft. If you have started an SIP, this weighting scheme is referred to as the “ideal composition”.

With time, as prices change, the constituents will deviate from the ideal composition.

  • Our algorithm compares your current constituents with the ideal composition to find the constituents that deviate the most.
  • The SIP amount is first invested in stocks where the weightage might have reduced. With every instalment, the algorithm ensures your constituents try to match the ideal composition in the long run

Understanding the SIP Algorithm with an example

The below table shows the composition on the day of investment and on your 1st SIP instalment. The change in weights is due to the change in stock prices over time.

Please note: To simplify, we have assumed an equal-weighted basket. The logic would work the same way for custom weights too

Initial Investment amount: 1,00,000

Monthly SIP instalment amount: 20,000

1. Calculate the number of shares based on the Total amount (Current value + SIP amount)

  • On the day SIP is due the current value of your investment is 1,12,000. We calculate the total amount as (Current Value + SIP amount) = 1,32,000
  • As per the above amount and the weights on T0, the number of shares to be bought will be calculated

2. Calculate additional shares to be bought

  • We then calculate the difference from existing holdings to form your SIP instalment

3. Determine the SIP amount

  • The stocks that have deviated below from the ideal composition are preferred
  • The actual instalment amount is calculated as New no. of shares * Market price of each stock

4. In the next SIP instalment, the same steps are repeated

💡 Pro-tip: Maintain a disciplined investing habit to reach the ideal composition for your smallcase in the long-term.

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