Rebalance portfolio once or twice a year to ensure investments are aligned with your financial goals and risk appetite
I am 38 years old and have been investing in the following mutual funds through SIPs. I intend to continue investing for another 12 years. Could you please advise if my portfolio needs rebalancing or if it is acceptable?
Parag Parikh Flexi Cap: Rs 3,000 per month
Aditya Birla Sun Life ELSS: Rs 1,000 per month
As a 38-year-old investor planning a 12-year systematic investment plan (SIP) across various mutual funds, it's crucial to consider portfolio rebalancing to optimize your investment outcomes. Here's your current SIP allocation:
1. Axis Blue Chip: Rs 2,000
2. Axis Small Cap: Rs 2,000
3. Axis ELSS Tax Saver: Rs 2,000
4. HDFC Small Cap: Rs 1,500
5. Nippon India Small Cap: Rs 2,000
6. SBI Small Cap: Rs 2,000
7. UTI MNC Fund: Rs 1,000
8. Mirae Focused Fund: Rs 2,000
9. Mirae Large Cap: Rs 2,000
10. Mirae ELSS Tax Saver: Rs 2,000
Rajiv Bajaj, Chairman & MD, BajajCapital Ltd., emphasizes that investing in mutual funds is a highly effective way to build wealth over time. However, to ensure optimal results, periodic portfolio rebalancing is essential.
Portfolio rebalancing is the strategic process of adjusting your investment portfolio to uphold its original risk-reward profile. Essentially, it entails periodically buying or selling assets to maintain the intended level of asset allocation or risk. Experts recommend rebalancing once or twice annually to ensure that your investments remain in line with your financial objectives and risk tolerance.
To initiate portfolio rebalancing, the first step is to envision your financial goals. Given your 12-year SIP, focus on long-term objectives such as retirement planning, funding your child's education, or purchasing a house. By visualizing these goals, you can ascertain the appropriate risk-reward ratio, which will then inform your asset allocation strategy.
As emphasized earlier, comprehending an investor's distinctive blend of investment horizon, risk tolerance, and objectives is pivotal before suggesting an appropriate investment approach. When the investment horizon is extended and there's a willingness to accept aggressive risk, crafting an equity-centric portfolio is recommended. Notably, your current portfolio already comprises schemes spanning various equity categories.
We propose expanding the equity portfolio by diversifying exposure across different market capitalizations. Distributing your total monthly investable amount of Rs 22,500 equally among the following funds would be prudent:
1. HDFC Large & Mid Cap Fund
2. Nippon India Growth Fund
3. Nippon India Multi Cap Fund
4. Kotak Multi Cap Fund
5. Parag Parikh Flexi Cap Fund (Existing)
6. HDFC Small Cap Fund (Existing)
This allocation strategy guarantees that your portfolio maintains diversification not just across different equity categories but also among various asset management companies. By embracing this approach, you bolster the robustness of your portfolio, alleviating risks linked to specific market segments or fund managers.
Regularly assessing the performance of mutual funds enables the identification of underperforming funds, which can then be substituted with better-performing ones. This facilitates the maintenance of the desired rate of return.
(The opinions expressed by the investment expert are their own. For investment inquiries, please email us at askmoneytoday@intoday.com. Our panel of experts will address your queries.)
