Rebalancing & Behavioural Discipline
Lesson 3 of 5 in Portfolio Construction & Risk · 8 min read
Markets move your portfolio away from its target allocation over time.
Why rebalance
After a strong equity rally, a 60:40 portfolio might drift to 70:30, carrying more risk than intended. Rebalancing restores the target.
When to rebalance
- Calendar-based: once a year
- Threshold-based: when an asset drifts more than, say, 5 percentage points
Tax-efficient methods
Direct new SIPs or lumpsum investments to the under-weight asset before selling anything. This reduces taxes and exit loads.
Behavioural benefits
Rebalancing turns an emotional decision into a rule. It quietly sells what has run up and buys what has lagged.
Key takeaways
- Rebalance annually or at set drift bands
- Rebalancing enforces buy-low, sell-high
- Mind taxes and exit loads when rebalancing