Rebalance your portfolio once or twice a year to make sure your assets are in line with your financial objectives and risk tolerance. I am 38 years old and have been investing in the following mutual funds through SIPs. I aim to invest for next 12 years. Please advise if I need to rebalance my portfolio or if it is fine.
Parag Parik Flexi Cap: Rs 3,000
Adity Birla Sun Life ELSS: Rs 1000.
Axis tiny cap costs Rs 2,000.
Axis ELSS tax saver is Rs 2,000.
HDFC Small Cap: Rs 1500.
Nippon India Small Cap: Rs 2,000
SBI modest capitalization: Rs 2,000.
UTI MNC fund: Rs 1000.
Mirae-focused fund: Rs 2,000.
Mirae Large Cap: Rs. 2,000
Mirae ELSS Tax Saver: Rs 2,000
Response by Rajiv Bajaj: Chairman & MD of BajajCapital Ltd.
Investing in mutual funds is one of the most successful strategies to build money over time. As a 38-year-old investor considering a 12-year systematic investment plan (SIP), there are numerous important factors to consider in order to obtain the best results—one of which is portfolio rebalancing.
Portfolio rebalancing is the act of reorganizing your investment portfolio such that it retains its original risk-reward profile. In layman’s terms, it refers to the periodic purchase or sale of assets in order to preserve an original or intended level of asset allocation or risk. It is advised that you rebalance once or twice a year to ensure that your investments remain in line with your financial objectives and risk tolerance.
The first step in portfolio rebalancing is to picture your financial goals. As you embark on a 12-year SIP, think about long-term financial goals such as retirement planning, financing for your child’s school, purchasing a home, etc. Visualizing this will assist you in determining the appropriate risk-reward ratio, which will subsequently drive your asset allocation.
As previously said, understanding an investor’s specific mix of investment horizon, risk tolerance, and goals is critical before advising an appropriate investment plan. When the investing horizon is lengthy and the risk tolerance is high, it is best to build an equity-oriented portfolio. Notably, your current portfolio already includes plans from a variety of equity sectors.
We advocate expanding the equity portfolio with exposure to various market capitalisations. Allocating your entire monthly investable amount of Rs 22,500 equally among the following funds would be considered:
- HDFC Large & Middle Cap Fund
- Nippon India Growth Fund.
- Nippon India Multi Capital Fund
- Kotak Multi-cap Fund
- Parag Parikh Flexi Cap Fund (Existing).
- HDFC Small Cap Fund (Existing).
This distribution method guarantees that your portfolio is diversified not just across equity categories, but also across asset management businesses. By taking this strategy, you increase the robustness of your portfolio while minimizing risks connected with certain market sectors or fund managers.
Reviewing mutual fund performance on a regular basis will assist identify non-performing funds, which may then be replaced with better-performing ones. This helps to sustain the appropriate rate of return.