In such challenging times like this one would often question me why am I Still talking about personal finance? Well that’s the sole reason I am here for, Right?
So let’s begin there can never be a straightforward answer to this question of rebalancing. I have time and again tried to familiarize people with this idea but it seems it’s too difficult a concept to understand for them. So to make it easier for them – to rebalancee ones portfolio you would require: – to frame a rule on your own as to what your asset allocation will be and secondly at what periodicity (time period) it should be re-balanced?
As a thumb rule rebalancing should be done after 1 year, the reason is obvious it will be more tax-efficientfor you. Take a look at your asset allocation every 1 year and if it changes by more than 5%, rebalance it; otherwise not. But resist your temptation to re-balance every now and then because you might incur transaction costs and taxesas applicable.
If you are investing through the SIP mode in the mutual funds, re-balancing should be done based on the value of your portfolio. Just in case you find it difficult to calculate your portfolio create one online (many websites allow you to create your own portfolio). Let’s assume your current asset allocation is 75% in equity and 25% in debt. Now, let us assume after a year, you find that your equity part has gone up by 20% and debt is up by 10%, and consequently your overall portfolio now consists of say 85% equity. Then, you should either stop your SIP for a few months or (you can enroll for 1 year period SIPs on a regular basis) and make larger investment in debt instruments. This way you will be able to rebalance without selling or redeeming any investment, and avoid any tax implications. Before I conclude, Stay Calm, Stay safe, Stay Healthy.
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