When to Review and Rebalance Your Mutual Fund Portfolio
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- Arijit Sen, SEBI Registered Investment Adviser and Co-Founder of Merry Mind, argues that periodic portfolio reviews—not a set-and-forget stance—are needed to keep mutual fund investments aligned with financial goals, risk appetite, and asset allocation targets.
- Regular monitoring should flag allocation slippage, such as equity exposure growing well beyond the target allocation because of a market rally, Sen said, while the annual review is the moment to check whether each fund still serves its original goal.
- Annual review should also reassess whether a fund's expense ratio and tracking error remain competitive and whether the fund manager's tenure and investment process are intact, per Sen.
- Rebalancing should be triggered by measurable deviations from the target asset mix rather than gut feeling, Sen said, and should be used to restore the portfolio's intended risk profile.
- New contributions and SIPs should be used to rebalance where possible, minimizing transaction costs and tax impact compared to selling existing holdings.
- Common mistake: focusing solely on absolute returns without weighing risk, costs, and the fund's role in the portfolio, which Sen said undermines compounding and increases churn.
Why it matters: Investors who skip periodic reviews risk silent allocation drift—equity exposure can swell well past the target during a market rally, leaving the portfolio riskier than intended. Using new SIP inflows to rebalance, rather than selling, keeps transaction costs and tax impact low and protects compounding over the long run.
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