Portfolio Rebalancing

Balance the debt-equity allocation of your portfolio once a year to suit your investment goals…


Four years ago I invested in eight funds of which four are not performing well. I don’t understand how to rebalance my portfolio and what to do with these funds?
- Kumar Kaushik

Before rebalancing you should be aware of the debt-equity allocation that you followed at the time of investing in the eight funds. For instance if you ensure a 60:40 allocation to debt and equity, you will have to move the value of your investments between debt and equity to maintain this allocation. This balance helps n overall portfolio stability. However, this balancing exercise should not be undertaken very frequently. Balancing your portfolio to suit your desired asset allocation once a year is a good starting point. However, you may relook at the allocation if it gets completely disoriented due to some reasons.

As for the non performing funds, it will be a good idea to cut your losses and exit them and re-invest the sums into better performing funds from the same category to maintain your asset allocation. There is a lesson that you can draw from these investments; a fund does not lose its performance overnight, the performance goes down gradually and an investor has enough exit options in this phase. You will know underperformance if you track the performance of your funds regularly to make any necessary changes. You should start disciplining yourself and track the performance of your funds regularly.



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