Your portfolio drifts. Rebalancing brings it back on course.

When you first build an investment portfolio, it reflects your risk profile, goals, and time horizon.

Maybe it's 70% equity, 30% debt. Or 60% equity, 20% debt, 20% gold.

But over time, as different asset classes perform differently, your portfolio drifts from its original shape.

• Equity booms? Your 70% becomes 80%

• Debt outperforms? You’re underexposed to growth

• One segment crashes? You’re suddenly off-balance

This is where portfolio rebalancing comes in.

Let’s break down what it is, why it’s essential, and how you can use it to build smarter, more stable wealth.

1. What Is Portfolio Rebalancing?

Rebalancing is the act of adjusting your portfolio back to its original target allocation by:

• Selling some assets that have grown disproportionately

• Buying more of the underperforming (or underweighted) assets

2. Why Rebalancing Is Important

Left unchecked, your portfolio’s risk level shifts with the market.

Rebalancing brings your portfolio back to the intended risk-return balance, ensuring:

• You don’t take unintended risks

• You systematically book profits from overperforming assets

• You buy low and sell high—automatically

3. Real-Life Example

Imagine this simple portfolio:

• ₹7 lakhs in equity funds

• ₹3 lakhs in debt funds

Over a year, equity grows 20%, debt stays flat.

New values:

• Equity = ₹8.4 lakhs

• Debt = ₹3 lakhs

• Total = ₹11.4 lakhs

• New split = ~74% equity, 26% debt

You’re now more exposed to equity than you planned. If the market dips, your losses could be sharper.

Rebalancing means selling ~₹0.4 lakhs from equity and shifting it to debt—realigning to 70:30.

4. Rebalancing Is a Discipline, Not a Reaction

You’re not predicting markets. You’re following a system.

Benefits include:

• Protecting gains

• Avoiding greed-based overexposure

• Instilling rationality in emotional markets

• Enhancing long-term returns through volatility management

5. When Should You Rebalance?

There are two common methods:

✅ Time-Based Rebalancing

• Review and reset your portfolio annually or semi-annually

• Ideal for long-term investors with steady cash flows

✅ Threshold-Based Rebalancing

• Rebalance when asset class weightings deviate beyond a preset band (e.g., +/- 5%)

Choose what fits your personality:

• If you prefer structure, go time-based

• If you enjoy monitoring, go threshold-based

6. How to Rebalance: Step-by-Step

1. Know your ideal allocation (based on your goals and risk profile)

2. Track current allocation quarterly or annually

3. Calculate the drift for each asset class

4. Buy/Sell accordingly to restore balance

5. Use SIPs/STPs/Top-ups if you prefer not to redeem

For example:

• If equity is overweight, future SIPs can go to debt until balance is restored

• Or use new inflows to tilt the mix back toward your goal

7. Mistakes to Avoid

• Ignoring rebalancing completely

• Rebalancing too frequently (increases costs/taxes)

• Reacting emotionally to market swings

• Not reviewing your original goal allocation periodically

TL;DR — Too Long; Didn’t Read

• Portfolio rebalancing means resetting your investments back to their intended asset allocation

• It prevents overexposure to risk and ensures healthy, long-term performance

• Helps you systematically book profits and reinvest in undervalued assets

• Rebalancing once a year or when drift exceeds 5–10% is a smart strategy

• Stay disciplined, not reactive—and your portfolio will thank you

📩 Not sure if your portfolio has drifted too far? Let’s review it and build a rebalancing strategy that keeps your goals on track—quietly and consistently.