Stock Market Surge: Should you rebalance your portfolio now? | The Financial Express

Stock Market Surge: Should you rebalance your portfolio now?

With the Bombay Stock Exchange (BSE) Sensitive Index (Sensex) hovering above the all-time high level of over 60,000 points, it may be a good time to check the performance of your portfolio.

Stock Market Surge: Should you rebalance your portfolio now?
As a high market creates a buzz, novice investors often get confused.

With the Bombay Stock Exchange (BSE) Sensitive Index (Sensex) hovering above the all-time high level of over 60,000 points, it may be a good time to check the performance of your portfolio.

Buy or Sell?

As a high market creates a buzz, novice investors often get confused.

Don’t Buy in Bulk

One should never make lump sum investments in equities at a high market, even though the high returns enjoyed by the existing investors may tempt you to do so. This is because the prices of the shares or the Net Asset Value (NAV) of the equity-oriented mutual fund (MF) schemes may fall during the intermittent market corrections and the investor invested for good returns may redeem the investments at a loss after getting panicked by seeing the returns in negative zone.

However, if you are investing through a Systematic Investment Plan (SIP), you shouldn’t stop it just because the NAV of the MF schemes is high.

Don’t Sell Indiscriminately

Although a high market provides opportunity to book profit, you should remember that ups and downs are the part and parcel of equity markets. So, by selling your equities just to book profits, you may put your financial goals out of focus.

When to Sell

You may redeem that part of your equity investments, investment goals of which are very near or you have already achieved the investment objectives. Another reason for selling may be to rebalance your portfolio, if you have adopted the portfolio rebalancing method to optimise your portfolio returns.

This is because the surge in the equity part may have disbalanced the debt:equity ratio in your portfolio, and by rebalancing the portfolio to restore the pre-decided ratio, you may book profit at the high market while transferring investments from the equity segment to debt segment.

Benefits of Portfolio Rebalancing Method

Adopting the portfolio rebalancing method allows you not only to book profit at high markets, but also to invest in low markets to get more equity shares or units of equity-oriented mutual fund (MF) units – as the debt part in the portfolio gets inflated when equity prices crash during a market meltdown.

So, the portfolio rebalancing method provides an opportunity to enhance your portfolio returns by providing the opportunity to invest in a low market and to book profit in a high market.

However, you should refrain from doing so, if you have just rebalanced your portfolio. Because too frequent rebalancing may not serve the purpose and you may end up paying exit loads and tax on short-term capital gains.

So, you may sell part of your equity investments at the high market, but judiciously.

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