Rebalancing
Markets move your allocation for you. Rebalancing moves it back, and quietly makes you buy low and sell high.
Drift
If equity rises 30% while debt rises 7%, a 60/40 portfolio drifts to about 64/36. After a few good years it could be 75/25: far riskier than you chose, just before the next fall.
Target
After a strong year
How to rebalance
Once a year, or when any asset is more than 5 percentage points away from its target, bring it back. The gentlest way is to direct new SIP money to the underweight asset. If that isn't enough, sell some of the overweight asset.
Watch tax and exit loads: selling equity held less than a year attracts 20% short-term capital gains tax, and some funds charge exit loads within the first year.
Why it's hard
Rebalancing means selling what's been winning and buying what's been lagging, the opposite of what feels right. That's exactly why a written rule helps: the decision is made in advance, not in the heat of the moment.
Key takeaways
- 1Portfolios drift toward whatever has done well.
- 2Rebalance yearly or at 5-point drift.
- 3Use new money first; watch tax and exit loads.
Try it with your own numbers
Finish this lesson
Reaching the end marks it complete. You can also mark it yourself.
Educational content, not investment advice. Figures are illustrative.