Nisar Shaikh wants to know how a regular SIP investor can rebalance his portfolio to achieve an ideal allocation
03-Feb-2009 •Research Desk
How does one rebalance their portfolio if the person is a regular SIP investor? Of my monthly investible amount, I invest 60 per cent in debt and 40 per cent in equity. Both investments are made through SIPs. At one point, the value of my equity investments almost equalled my debt investment. But after the recent slump my equity investment accounts for 30 per cent of my portfolio. How am I supposed to rebalance my portfolio so that my portfolio reflects the allocation that I am supposed to have? Should I move a lump sum amount from my debt (which is doing alright) to equity? Or should I re-jig the monthly investment in equity and debt to arrive at the desired allocation. Please guide.
- Nisar Shaikh
If you want to ensure a 60:40 allocation to debt and equity, you will have to move your money from debt to equity gradually to maintain the allocation. By doing this periodically, you will methodically realize gains from equity when it goes up and its allocation increases. Likewise, when equities go down you should move money from debt to equity. This will ensure a method of buying low and selling high which is crucial to making money from equities and having overall portfolio stability with the debt component.
There could be many ways to approach rebalancing. Tax on gains from equity or debt fund is a constraint while rebalancing.
So, the broad rebalancing principle should be to avoid frequent rebalancing unless the allocation gets completely wacky. Annual rebalancing can be tax efficient as long-term equity gains are tax-free.