Rebalance Your Investment Portfolio

Investment is considered as a lazy activity. An investor is seldom advised not to peek into your investments very often. It is true that, investment is a long term affair and short term volatility need not affect the investor’s thought process.
However, due to various changes in our personal life, it is always advised to look into your investment portfolio atleast once in two years and depending upon your present personal and financial situation, rebalance your portfolio as per the present risk appetite.
Market situations also do change over a period of time and hence our investments need to be aligned in the same direction as that of the market. Ultimately we are expecting good returns from the market and putting our investment in the similar direction as that of the market makes lot of sense. Rebalancing would take care of such activity.
Rebalancing on a periodic basis often delivers superior returns and helps tide over volatility.

What is Rebalancing?
Our investment portfolio consist of various types of products such as Equity oriented, Balanced or Hybrid funds, Debt funds, etc depending on our age as well as risk taking ability. Also, the nature and tenure of the financial goals attached to our investment products also decide the portfolio mix.
Rebalancing can be defined in various formats. The best way to explain Rebalancing is the act of bringing your portfolio back to its desired asset mix so that your financial goals are achieved comfortably.
Rebalancing of your portfolio can be done in three ways:
  • Threshold-linked: Rebalancing is triggered when the asset mix deviates from the desired allocation by a predetermined percentage.
  • Time-linked: Rebalancing based on a pre-determined schedule.
  • Time-and-threshold-linked: Portfolio is monitored as scheduled, but rebalanced only if the allocation deviates from the target mix by the predetermined minimum threshold.

Cost of Rebalancing
  • Capital Gains Tax: Gains realised from selling equity investments within one year of investing are taxed at 15%. Debt investments sold within three years attract tax at the marginal rate.
  • Exit Loads: Mutual funds may levy exit load charges of up to 2% on investments sold within the specified time limit.
  • Brokerage Costs: Buying and selling securities such as bonds and stocks incurs transaction charges such as brokerage and STT.

Benefits of Rebalancing
-          It helps align your investments with your goals.
-          It is a risk-minimising strategy.
-          It prevents you from emotion-based trading and imposes discipline on investing.
To Summarise:
Investments are made to perform certain tasks of generating desired returns as per the financial plan, and it is the master’s (investor’s) duty to make sure it does so. And to make sure your investment portfolio performs the way it was designed, Rebalance your Portfolio periodically.

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Vitamin-M Financial Services

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