How to Review and Rebalance MF Portfolio
Introduction
Regularly reviewing and rebalancing your mutual fund portfolio is essential to ensure it aligns with your risk profile, financial goals, and market conditions. This lesson helps you understand when and how to do it effectively.
1. What is Portfolio Review?
Portfolio review is the process of periodically analyzing your mutual fund holdings to evaluate their performance, allocation, and relevance to your financial goals. It helps ensure that you’re not taking on too much risk or underperforming unnecessarily.
2. Signs That Your Portfolio Needs a Review
- Significant deviation from your target asset allocation
- Consistent underperformance compared to benchmark indices
- Change in your financial goals, income, or expenses
- Shift in your risk tolerance or nearing retirement
- Tax inefficiencies or recurring losses in specific funds
3. What is Rebalancing?
Rebalancing is the act of adjusting your mutual fund portfolio to return it to your desired asset allocation. For instance, if you initially planned for 60% equity and 40% debt, but the equity grows to 70%, you’d rebalance by shifting funds back to debt.
4. Rebalancing Methods
| Method | Description |
|---|---|
| Calendar-Based | Rebalance at fixed intervals like quarterly, bi-annually or annually. |
| Threshold-Based | Rebalance when your asset class deviates beyond a certain threshold (e.g., ±5%). |
| Hybrid | Combination of both calendar and threshold methods. |
5. Example Rebalancing Calculation
Let’s say your target is 60% equity and 40% debt. Over time:
- Equity grows to ₹70,000
- Debt stays at ₹30,000
- Total = ₹1,00,000
Target Debt = 40% of ₹1,00,000 = ₹40,000
Excess in Equity = ₹70,000 − ₹60,000 = ₹10,000
Action: Shift ₹10,000 from Equity to Debt
6. Tools to Help You Rebalance
- Online Rebalancing Calculators
- MF Platforms like Coin by Zerodha, Groww, Kuvera
- Financial Planners or Robo-advisory tools
7. Things to Keep in Mind
- Exit Loads: Some funds charge if you exit before a certain period.
- Tax Implications: Selling funds might trigger short-term or long-term capital gains tax.
- Use SIPs to Rebalance: Instead of selling, you can direct future SIPs to underweighted assets.
8. Conclusion
Rebalancing ensures your investments stay aligned with your goals and risk appetite. Make it a regular habit to check your portfolio and adjust when necessary.