MF Portfolio Re balancing Query

POSTED BY Sushanta Choudhury ON April 19, 2013 2:41 pm COMMENTS (9)

Dear members,

I need your guidance with respect to asset allocation and rebalancing

I am 28 & planning for my retirement. As on date I have 2 Large Cap & 1 multi Cap MF dedicated to retirement objective.

Everywhere I read that one should rebalance his portfolio probably annually so that your gains are protected. My queries are ….

1) Since I am planning for my retirement is it necessary that from now onwards I have to do it for next 28-30 yrs every year.

2) Is it necessary that for rebalancing I have to open a long term debt mutual fund side by side for 30 years so that equity gains can be transferred to debt fund and I can again start a STP from debt when markets are down to purchase more units. Can’t it be done by keeping the money in SB A/C ?

3) Suppose my SIP investments appreciated upto 2 lks (principal 1 Lk) on some date. Now what I am supposed to do? Buy n Hold or should I book my profit of  1 lk and move it to debt fund or I should sell all my units & transfer to debt fund and carry on with my SIP as usual to equity fund.

Now this seems bizzare but note why I am saying this this ……..

If I protect only my gain of 1 lk and from just next day onwards market start going downward then value of my principal also will go down by the same % and although my new SIPs will earn more units but this 1 lk will keep loosing its value. So why not to bottom out and keep going on with the regular SIP.

4) Now if I go for continious rebalancing where I am getting the benefits of compounding in MF. At the end of 30 yrs. I will find that I have only my Principal amount lying in the Fund.

And while saying all those points it is also true that buy n hold doesn’t work for you even in the long term say 15 years without redeeming anything and waiting for compounding. Although in long run capital protection is there in equity but it may happen that after 15 yrs. CAGR is 21%..after 16 yrs CAGR is 17% etc… So pure gains are never protected.

Please advice. 

Finally one thing more Reliance RSF equity Growth is hurting me last 2+ years.I am planning to Stop the SIPs. But then the main question. What to do with the exisiting amount. Should I wait for its good times or sell out. In case of total closure how to invest the lumpsum again?

Hope I have expressed clearly my queries.

9 replies on this article “MF Portfolio Re balancing Query”

  1. Sushanta Choudhury says:

    Thank U both…..Pattu &Ashal for your valuable inputs.

  2. Dear Pattu, this is foul. If you are dummy, what should I call myself? Super dummy? 😉



  3. Dear Pattu, I agree with you but here again the old question arise, how much is too much? 🙂

    Just for sake of discussion, say the corpus need is 15 Crore Rs. after 30-32 years from here onwards. Now when w’d you say the corpus is big? 15L or 50L or 2Cr. I know the basic answer ‘ll be again – each individual’s comfort level. 🙂



    1. Precisely. Which is why annual rebalancing like SIP is a bit like ‘investing for dummies’ (like me).

  4. Ashal,

    rebalacing within tolerance limits is fine as long the equity % in the porfolio does not become too big. Bull run or bear run if the market crashes the fall will be heavy.

    Annual rebalancing is not necessary in the initial years when the portfolio is small. When it becomes big it is safer to do it annually.

    If someone rebalances annually for the kind of returns you have indicated, he actually stand to gain when the market starts to dip.

  5. Dear Sushanta, as you are planning for your retirement, active management at the end of every year is not required. Just check the performance of the fund in question is OK with you & let it continue. Just for an imaginary situation – Your comfort level of upside is say 20% return in any year. Now the fund returned 30%. As per your own comfort level, you booked profit & next year there is another positive return of 45%. (please check the on way bull run from 2003-2007, to understand what I mean). Are you not losing out due to yly rebalance? Yes if the rebalance is to weed out laggards, it’s OK but then it should be also after giving sufficient time to the laggard for recovery.



  6. Ramesh says:

    Reliance RSF is a good fund. I would suggest to persist with it.

  7. 1) Yes
    2) a debt will do. A PPF acc should also do. Better since it is tax free. NPS account can also be used for this purpose (set the equity component in NPS small like 15%)
    3) and 4) Use this to understand how rebalancing works

    You are eliminating risk. Compounding will still occur. It just not very apparent that is all.
    Rebalancing is transfering from a well performing asset to a (relatively) underperforming asset and vice versa so that your asset allocation remains close to your risk profile

    4) not true. Check the calculator

    All said, a buy and hold strategy is not that bad. However you should buy and HOLD. not worry if almost all MF have had a bad year.

    Exit your MF only if other funds in same category are performing better for a period of 3-4 years. If over 3-4 years your fund has beat the benchmark nothing you can ask of it.

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