Introduction

With half the year behind you, as a responsible investor and a good financial practice, it is time to take stock of your mutual fund investments. Your portfolio needs a mid-year evaluation for annual maintenance of your financial goals. Now is the time to assess if your investments are aligned with those goals.

The markets, your financial goals, or how you invested your assets may have changed. A mid-year portfolio check helps you modify your portfolio accordingly and stay on track.

Do I Need to Rebalance My Portfolio?

Investing cannot be a one-time and done deal. To get the best out of your investment, you must do periodic ‘health checks’ to ensure you are on the right track. Recalibrate your asset allocation ratio, considering the market fluctuation, your current risk appetite, and the time limit for your short- and long-term goals.

So, in a nutshell, yes, rebalancing your portfolio is a good practice. By rebalancing your portfolio, you:

• Don't get swayed by market fluctuation

• Stay aligned to your goals

• Mitigate any short-term volatility by diversifying your portfolio

• Capitalise on market highs and lows

Launch PMS Journey

When is a Good Time to Rebalance?

As a good practice, review your assets every six months; a mid-year review should be ideal. Here are key markers you should look at when rebalancing your portfolio:

Your Goals

If your financial goals change due to a shift in your personal life (e.g., buying a bigger house, starting a children’s education fund), you will need to tweak your investment strategy.

Market Trends

A shift in the market and volatility can cause a mismatch in your allocation and goal. If any of your funds have risen, fallen, or been affected by an interest rate change, it is time to rebalance your portfolio. If your current allocation deviates from your initial strategy by more than 5-10%, it's time to rebalance.

Poorly Performing Funds

A mid-year review can help you analyse whether any funds have underperformed their benchmarks or peers. Based on this review, you can determine whether to stick with them or reinvest.

Smart Steps to Rebalance Your Portfolio

You don’t have to blindly sell or buy just to rebalance your portfolio. Don’t disrupt your investment journey so far by making rash decisions. Here is how you can approach portfolio rebalancing:

Understand Your Asset Allocation

Review where your money is currently invested (equity, debt, hybrid, sectoral funds, etc.) You can do so by checking on your investment app or your fund house’s dashboard.

Align it to Your Target Allocation

Look for any gaps in the goal alignment. Is your portfolio tilting towards equities? Can your debt allocation provide stability in case of equity market volatility?

Leverage SIPs/STPs for Balance

Consider using Systematic Investment Plans (SIPs) or Systematic Transfer Plans (STPs) to gradually switch asset classes instead of lump-sum transfers.

Factor in Taxes

Selling equity funds held for less than a year may result in short-term capital gains tax upon rebalancing. Always consider exit loads and taxes before changing.

Talk to a Financial Expert

If you are uncertain about how to proceed, consult with a registered investment advisor who can provide guidance on fund selection, asset allocation, and rebalancing techniques.

Tips to Keep in Mind

• Don’t take impulsive decisions:  Market fluctuations should not drive you to take impulsive decisions. If you are rebalancing, make sure it is an informed decision and not out of panic.

• Returns are not always consistent:  Don’t invest in a fund just because it outperformed other funds in the past. Past performance has no bearing on how your fund will perform in the future.

• Don’t overdiversify: Overdiversification can dilute the performance of your funds; choose your portfolio carefully.

Conclusion

Markets fluctuate and life goals evolve, but your overarching goal will always be wealth creation, financial freedom, and achieving coveted peace of mind. Reviewing your portfolio mid-year is a good practice that helps you stay proactive rather than simply going with the flow of the markets, allowing you to make thoughtful and informed decisions.

Rebalancing isn't just a strategy for timing the market; it's a way to ensure your investments reflect your personal goals and lifestyle. If you haven’t yet rebalanced your portfolio, set aside an hour today to log into your portfolio dashboard and go through it quickly. Small steps taken in the right direction today can pave the way for great results for your future.

Recommended Reads - Portfolio Investment Steps | Building Ideal Portfolio | Portfolio Diversification | Portfolio Asset Allocation | Strategies to Select Good Portfolio Management Service |Role of Bond in Investment Portfolio