Imagine you’ve spent months training for a marathon. You have the perfect shoes, a great diet, and a steady pace. But halfway through, you notice you’re leaning too far to the left. If you don't adjust your posture, you’ll end up with an injury before the finish line.

In the world of mutual funds, rebalancing is how you adjust your financial posture. Over time, some of your funds will grow much faster than others. While that sounds like a good problem to have, it actually changes your risk. If your safe portfolio suddenly becomes 80% stocks because the market rallied, one bad week could wipe out years of gains.

In 2025, with Indian markets showing both record highs and sudden flash dips, rebalancing isn't just a choice, it's a necessity. Here are the best practices to do it right.

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The Why Behind the Move

Rebalancing is the only time you will ever Buy Low and Sell High systematically.

• When you rebalance, you sell a portion of your expensive assets (the ones that grew too much) and use that money to buy cheap assets (the ones that haven't moved yet).
• This forces you to book profits when everyone else is getting greedy and stay invested when everyone else is fearful.

Choosing Your Trigger: Time vs. Threshold

There are two main ways to decide when to rebalance. Most experts in 2025 suggest a combination of both.

A. The Calendar Method (Time-Based)

You pick a date, say, your birthday or January 1st and check your portfolio once a year.

• Pros: Very simple; prevents over-trading.
• Cons: You might miss a major market move that happens between your dates.

B. The 5% Rule (Threshold-Based)

You only rebalance when your asset mix drifts by more than 5% from your target.

• Example: If your target is 60% Equity and 40% Debt, you rebalance only if Equity hits 65% or drops to 55%.
• Pros: More responsive to real market changes.

The 2025 Rebalancing Checklist

To rebalance like a professional on the MO Riise app, follow these steps:

1. Check the Current Actual Mix: See what percentage of your money is in Equity, Debt, and Gold today.
2. Compared to Your Ideal Mix: Is it still aligned with your 5-year goal?
3. Identify the Overweights: Which fund has grown so much that it's taking up too much space?
4. Consider the Tax Impact: This is the most important step for Indian investors in 2025.

Taxes & Costs: The Hidden Hurdles

Rebalancing involves selling, and selling involves costs. In India, you must be aware of:

• LTCG Tax (12.5%): Applied to equity gains above ₹1.25 Lakh per year (held for >1 year).
• STCG Tax (20%): Applied if you sell equity funds held for less than a year.
• Exit Loads: Most funds charge ~1% if you withdraw within 12 months.

Pro-Tip for 2025: Instead of selling and paying tax, you can rebalance using New Money. If your Debt allocation is too low, don't sell Equity; simply direct your next few months of SIPs or any bonus into your Debt funds until the balance is restored.

Rebalancing Comparison Table

Conclusion: Discipline Over Prediction

Rebalancing is not about predicting where the Nifty 50 will go next week. It is about admitting that we can't predict the future and choosing to stay disciplined instead. By bringing your portfolio back to its center, you ensure that you are never taking more risk than you can handle.

As we move toward 2026, the investors who Sit Tight with a balanced portfolio will always outlast the ones who chase every high-flying trend without a safety net.

Suggested blogs: Beginners guide to Mutual funds | Mutual funds units - Calculation & How does it work? | What is an ideal portfolio asset allocation or breakup?

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