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Portfolio rebalancing is adjusting the weighting of different asset classes to ensure they align with the original investment plan and risk tolerance. Speaking with Cafemutual our industry experts MFD Gajendra Kothari, MFD Vinita Baraya, MFD Viral Bhatt and RIA Vivek Rege share their views on the rebalancing of portfolio.
MFD Gajendra Kothari of Etica Wealth, Mumbai
We opt for rebalancing at significant intervals because each asset class experiences fluctuations over time, swinging between highs and lows. About 80% of the time, we maintain a steady portfolio without rebalancing. We rebalance the portfolio roughly 10% of the time when the market becomes either high-priced or cheap.
I avoid frequent adjustments because they need client discussions and consume valuable time. Additionally, we aim to minimize unnecessary costs, such as taxation, which can occur with frequent portfolio rebalancing.
MFD Vinita Baraya, Jaipur
We believe in rebalancing every quarter, ensuring everything's on track. It's not just about adjusting equity and debt, it's a bigger picture that considers political and economic changes.
For instance, if the market heavily favors one side and equities hit 80%, instead of the usual 60:40 split, I would personally advise my client to stay at 80:20 if I foresee a bright market ahead. But in the future, if the client feels that the ratio has gone too high, we can adjust the equity ratio accordingly. It's all about staying flexible and optimizing for the best outcomes.
MFD Viral Bhatt of Money Mantra, Mumbai
I believe rebalancing shouldn't be based on specific events but rather on an individual's risk profile, investment duration and goals. For example, if I invested for a client in a small cap fund three years ago and it's yielded a 70% return, but the goal is still five or seven years away, I will not rebalance the portfolio.
When allocating for an investor, I ensure their portfolio is well-balanced at the time of investment. However, if a client needs and lifestyle changes and wants adjustments to align with their goals, I'll rebalance the portfolio accordingly to meet their needs.
RIA Vivek Rege of VR Wealth Advisors, Mumbai
Rebalancing occurs as asset values fluctuate and the allocation percentages also change. A tolerance level, typically set at +/-5%, acts as a bottom line. For instance, in a 60:40 allocation between equities and debt, if equities surge to 65% or above, rebalancing springs into action, moving the excess 5% back into debt.
However, the practicality of this activity is often hampered by factors like taxes, exit loads and constraints of certain assets such as close-ended funds, public provident funds and real estate holdings, making the incidental costs of decisions a crucial determinant in the rebalancing process.
