It's Time To Evaluate And Rebalance Your Portfolio

It is important to undertake a periodical review of one's investment. The objective of this exercise is to check if the investments are in perfect sync with the short, medium, and long term goals of the investor. If the investor finds any deviations then he can rectify his mistakes. This ensures that he gets optimum returns from his investments, for example, if the interest rates are falling then it makes sense to invest in equity instead of debt. 

Mutual funds have become preferred investment vehicles for small investors. However, like stocks even in mutual funds quality is important than quantity. The haphazard investment decisions can hamper returns, besides if you invest in many funds it might become difficult to monitor the performance of each one. Remember it is not just enough to invest, it is also important to constantly monitor the investments and conduct a periodic review of the portfolio. 


The first step in undertaking the rebalancing exercise is to make a list of all the investments. This will help you to prepare a list of your holdings along with their current values. Remember the goal of investing is to achieve your financial goals. The concept of portfolio rebalancing helps to optimize the asset allocation which makes it easier to achieve the financial goals. Every investor should strive to build a balanced portfolio. This helps to withstand market volatility. 

The portfolio rebalancing has to be done according to the risk appetite of the investor. However, many investors confuse portfolio allocation with diversification and end up owning the basket of similar funds. This is the wrong approach. If you do not understand portfolio rebalancing you should seek the help of a qualified financial advisor who will analyze your portfolio based on your risk appetite and suggest the optimum mix of funds. 

When you are balancing your portfolio, you should also keep in mind the tax aspect. If the equity fund is divested before 1 year then any gains made on it would attract the short-term capital gains tax. Thus while rebalancing the portfolio one has to keep in mind the period of holding too. Be mindful of the tax implications. Essentially you should try to avoid short-term capital gains by holding your funds for more than 1 year. 

Portfolio rebalancing a very important exercise. Its objective is to establish better risk control. It can be called a risk-minimizing strategy. It can align the investments according to the risk tolerance of the investors. The rebalancing aims to make the portfolio well-balanced. 

However, there are certain expenses involved which you must keep in mind. Besides capital gains, you must also be mindful of the exit load of the schemes. Some mutual funds charge an exit load on selling if you divest your investment within a specific period. The periodic rebalancing of the portfolio helps you to make informed decisions to achieve your financial goals with ease.

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