Portfolio Review and Rebalancing

If you set a 70:30 equity-debt split and equity markets rise sharply over a year, your portfolio might quietly shift to 80:20 — not because you chose to take more risk, but because one part simply grew faster than the other.

Rebalancing means periodically adjusting your holdings back toward your original target allocation — trimming the portion that's grown too large and adding to the portion that's shrunk, restoring your intended risk level.

Why it drifts

Markets move at different speeds — equity usually grows faster than debt over time, silently skewing your split.

How often

Once a year is enough for most individual investors — more often adds cost without much benefit.

What it costs

Selling to rebalance can trigger capital gains tax — factor this in, especially for equity held under a year.

A Worked Example

You start with ₹10 lakh split 70:30 (₹7 lakh equity, ₹3 lakh debt). After a strong year, equity grows to ₹9.1 lakh while debt grows modestly to ₹3.2 lakh — a total of ₹12.3 lakh, but now split roughly 74:26.

To rebalance back to 70:30

Sell ≈₹0.49 lakh of equity and move it into debt — restoring your original 70:30 risk level, locking in some of the equity gains along the way

Two Ways to Rebalance

Sell and shift

Redeem from the overgrown asset and invest the proceeds into the underweight one. Direct and immediate, but triggers a taxable event on whatever you sell.

Rebalance with new money

Instead of selling, direct your next few SIPs or lumpsum additions entirely toward the underweight asset until the ratio corrects itself — no tax event triggered.

💡 If you're still actively investing each month, rebalancing with new money is usually the more tax-efficient route — you only need to "sell and shift" when new contributions alone aren't enough to correct the drift.

Signs You're Overdue for a Review

It's been over a year

If you can't remember your last review, that alone is a signal — an annual check is the minimum cadence.

A major life event happened

A new job, marriage, a child, or nearing a goal deadline all change your ideal allocation — review sooner than the usual annual mark.

One fund dominates your portfolio

If a single holding has grown to be a disproportionate share of your total investments, that's concentration risk creeping in.

You're close to your goal

As a goal deadline approaches (retirement, a home purchase), shifting toward safer assets matters more than staying at your original allocation.

Frequently Asked Questions

How often should I actually rebalance?⌄

Once a year is a common, low-effort approach for most individual investors. More frequent rebalancing (monthly or quarterly) tends to rack up more transaction costs and taxes without meaningfully improving results for a typical long-term investor.

Does rebalancing always mean selling equity?⌄

No — if equity has grown to be overweight, you can redirect new SIP contributions entirely into debt for a while instead of selling anything, letting new money do the rebalancing without triggering a tax event.

Is there a threshold that triggers rebalancing, rather than a fixed schedule?⌄

Some investors use a "threshold" approach instead of a calendar date — rebalancing only when an asset class drifts more than a set amount (say 5-10 percentage points) from its target, whichever comes first.

Does rebalancing apply within equity too, not just equity vs debt?⌄

Yes — the same idea applies between large-cap, mid-cap, and small-cap allocations within your equity portion, since these also grow at different speeds and can drift from your intended mix over time.