Glide Invest FAQ: How does goal rebalancing work?

How does goal rebalancing work?

Rebalancing a portfolio can be done in two ways. One is to sell some funds and use the money to buy other funds. Another way is to increase SIP amount in a fund and decrease it in another to allow for the rebalanced allocation.

Rebalancing by the first method will lead to additional costs as well as taxes both of which are counterproductive to reaching the goal that an investor wants. We do not adopt this method.

Say you have a 10 year goal of Child’s education for 10 lac rupees and you are a risky investor. Based on this, a monthly SIP amount and a selection of funds will be presented to you. There shall be periodic (annual) rebalancing to ensure that the proportion of funds remain the same.  At year 3, we may review your portfolio and find out that due to market factors you may not meet your goal in time. In this case, we would recommend a SIP rebalancing to ensure that more money flows to investments that have a better probability of helping you reach your goal. As far as possible, this rebalance shall be done without changing the total SIP investment in the goal. 

Similarly, say for the same goal and a conservative investor, the goal review states that you shall exceed your goal amount at the end of goal period, in which cases SIP rebalancing will allocate more money to low risk funds to reduce your risk and preserve capital.

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