Apr 19, 2017 3 min read

How to Rebalance Your Mutual Fund Investment Portfolio?

Here’s how you can keep your investment portfolio balanced without compromising on your financial goals.
When it comes to gaining from the stock market, everyone knows buying at low and selling at high is what they have to do. But if it is done too often, it might cause big losses. The main challenge faced by every investor is earning the expected returns while managing the risk factors. Here’s where the diversification plays a pivotal role. Keeping diverse portfolio means spreading the investments across various sectors or securities. But is it so simple? No, not at all! Here we have brought the measures with which you can rebalance your investment portfolio at the time of need without bearing any extra cost.

It is quite obvious that everyone wants to stick to the winners, and so is the case with mutual fund investments. You would always want to stay invested in a scheme which is a winner in its category and offering great growth to your invested capital. Putting all the eggs in one basket is not good, and thus you must think of making a diversified portfolio for the purpose of gaining appreciation. So here are the best ways you can rebalance your investment portfolio at the times of need and make a smart move towards growth.

Diversification

Diversifying funds involves dividing the investments across and within a variety of asset classes which include equities and debts. In the case of a downturn in any one of the markets, diversification shall help you manage the risk. Each of the asset categories has certain risk and different rewards, and they all are affected by the market moves in some or the other way. Making an investment in all of them on a simultaneous basis with adequate proportion shall minimise the risk exposure and surely provide greater benefits to the investors.

But you must bear the major fact of diversification in your mind that it tends to reduce the returns on your portfolio. The reason being is that you earn an average return on all the investments you hold in the portfolio. Though diversifying may lessen the returns percentage, it also reduces the potential risk factors that simply leads to making safe investments with assured earnings.

Asset Allocation

The process of balancing various asset classes in a portfolio and determining the proportion in which the funds are to be placed in the bonds and stocks is referred to as asset allocation. Allocating assets depends on the individual needs, investment tenure, risk-bearing capacity, and other situation or factors. The balanced portfolios constitute assets which are allocated across a different range of investments. The portfolio is designed as per the individual requirements, and thus, there is no specific dentition to define an accurately balanced portfolio. An unbalanced portfolio may not deliver maximum possible returns, and there are various circumstances which may affect its performance immensely.

Rebalancing the Portfolio

It is never advisable that one should invest and forget their money to let it grow higher. It is a must for every investor that they should keep track over their investments and analyse their performances on a regular basis. With this, they become capable of grabbing the best opportunities in the market and switch to a better plan for their financial growth. The rebalancing technique is the most important factor to maintain your portfolio at a stable pace. There are mainly two reasons due to which rebalancing is required in the portfolio:

  1. Changes in Your Investment Objectives: There may come circumstances when you feel to make changes in the asset allocation due to an appraisal in income or on receiving a bonus. You shall try to make an aggressive allocation of your assets leading to rebalancing your portfolio.
  2. Market Fluctuations Changing the Balance: There are factors in the market which change the actual allocation of the assets over time. Suppose you made 60% assets allocation in the equities and remaining in debts, but due to market hikes, the values in your equities got appraised, and allotment reached 70% of the total value which ultimately led your portfolio imbalanced. In such cases as well, as per the situation, you must rebalance your portfolio as per your requirements to avoid the exposure towards uncertainties.

Knowing the time to rebalance is half the battle; knowing how to rebalance is the another half. One way of rebalancing is increasing the investments in asset categories which have fallen below the original allotment percentages. While on the other side, you can also rebalance the portfolio by selling the assets in one category and utilise its proceeds to increase allocation in the other category. This all needs to be done considering the market factors which may incur heavy losses.

MySIPonline provides the ease of investing, and our financial advisors shall help you in making balanced portfolio in an apt manner. So instead of getting confused, make a smart move towards mutual fund investments online with us.

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