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REBALANCE : The Way to achieve your BALANCE

Posted By: Admin

There is enough speculation as  to the reason why the markets are at an all time high esp in India when the Covid seems to wreak havoc and business impact is reasonably severe. Also most of us are aware that the high global liquidity is aiding the equity markets being at reasonably high valuations unprecedented in history. Most of us also know that in situations like these one must expect  volatility esp since global inflation is nudging upwards. But in the absence of the ability to predict the future the next best thing to do is to REBALANCE the portfolio now. 

What do we mean by REBALANCE of your portfolio, 

let's say, you started investing a year back and your Asset Allocation that you had chosen for yourself was Equity : Debt , 50 : 50.   

On an investment of Rs 50 Lakhs, so you would have invested Rs 25 Lakhs in Debt and Rs 25 Lakhs in Equity. 

If Debt investments had yielded 8%, Equity had generated 25% in the last year. Your current portfolio would now  be valued at :

Debt : 27,00,000, Equity : 31,25,000, Total Portfolio Value : 58,25,000

However the ratio of Debt : Equity is now  46:54, and not the 50 : 50 that you had wanted of your portfolio, so the REBALANCE would be to get the funds to look like this 

Debt : 29,12,500, Equity : 29,12, 500, Total Portfolio value : Rs 58,25,000

So one needs to move Rs 2,12,500 from Equity to Debt investments to ensure this happens.

In this process one is automatically forced to book some profits from the asset that has generated profits and park in the other asset. 

As one is not a soothsayer about what will happen in the future i.e  the next 3-6 months time, REBALANCE can be an effective tool to ensure that you are able to be objective about how you manage your portfolio as also book profits at the appropriate juncture. 

How often must one REBALANCE their portfolio, while there is no rule, our view is that it must be done at least once every year and at the happening of special events like the Covid Stock Market Crash in March 2020. 

If you have not  yet REBALANCED yet, do it now. 

By Babu Krishnamoorthy (Chief Sherpa, Finsherpa)

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