InvestorQ : What is Portfolio Rebalancing in the stock market?
Ria Jain made post

What is Portfolio Rebalancing in the stock market?

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Shivali Sharma answered.
10 months ago
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  • When you invest, you start with a certain mix and at regular intervals, you bring your portfolio to the original mix. Let’s say you have Rs 20 lacs to invest, there are two asset classes: Equity and Debt.
  • Your initial portfolio mix is 50:50 which means you invest Rs. 10 Lacs in Equity and Rs 10 Lacs in Debt. During the next 1 year, equity gives 20% returns while debt gives 5% returns.
  • Your initial investment and the total portfolio grow to 22.5 lacs, equity investment grows to 12 lacs and debt grows to 10.5 lacs.
  • However, if you rebalance the portfolio in the original ratio you’ll have equal amounts in equity and debt i.e. Rs 11.25 lacs each and to achieve this you will have to sell some portion of Equity and use the proceeds to purchase some debt. Every year investors repeat this exercise to earn better and focused returns on their investment. Rebalancing helps in reducing the volatility of your portfolio and can also help investors to earn higher returns.
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VIKAS DELIWALA answered.
10 months ago
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Rebalancing means adjusting your holdings—that is, buying and selling certain stocks, funds, or other securities—to maintain your established asset allocation. ... It's important to maintain your asset allocation because it keeps your tolerance for risk at the most comfortable level.

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