How do you rebalance your portfolio?

How do you rebalance your portfolio?

Rebalancing can be triggered based on different types of events, the two most popular being: 
  1. Time-based trigger: Be reviewing your investments once a year, or any other pre-defined time period, you can re-calculate your asset allocations and consider rebalancing your portfolio. 
  2. Threshold-based trigger: You can set a threshold of +/- 5% for your asset classes, and if the allocation at any point in time crosses the threshold, you can consider rebalancing your portfolio. 
Rebalancing can be done in different ways, the two most popular being: 
  1. Buy/Sell your funds: You could buy and sell portions of your funds within your portfolio in such proportions so as to match your target portfolio ratios.  Make sure to keep tab of exit loads and applicable taxes in case you sell your funds. 
  2. Modify future lumpsum/SIP transactions: You can modify future investments such that your asset allocation moves towards your target portfolio.  For example, in a 50-50 equity-debt portfolio, if the current allocation based on NAVs of the funds makes it 60-40 equity-debt, you can reduce your future investment in equity funds and increase your future investment in debt funds, and review the resultant asset allocation every 3 months.  

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