How to Rebalance Your Portfolio (and Why It Matters)
Rebalancing keeps your portfolio’s risk in line with your plan. Here’s what it is and a simple way to do it.
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Over time, the winners in your portfolio grow and quietly change your risk. Rebalancing brings it back to your target asset allocation — a simple discipline that keeps risk under control.
Why rebalancing matters
Say you set a 70:30 equity-to-debt mix. After a strong equity run, it might drift to 85:15 — far riskier than you intended. Rebalancing trims the overweight asset and tops up the underweight one, so you effectively “sell high and buy low” by design.
How to rebalance
- Set a target mix based on your goals and risk tolerance.
- Review periodically — once a year is enough for most investors.
- Rebalance with new money first — direct fresh SIPs to the underweight asset to avoid selling (and tax).
- Use a threshold — e.g. rebalance only when an asset drifts more than 5% from target.
Watch the costs
Selling to rebalance can trigger capital gains tax and exit loads. Rebalancing with new contributions, or within tax-efficient wrappers, reduces this. Don’t over-rebalance — once a year is plenty.
Rebalancing isn’t about chasing returns; it’s about staying on the risk path you chose. A once-a-year check is one of the simplest ways to invest better.
