Portfolio Rebalancing: When and How to Do It (Without Overthinking)

You set your asset allocation to 70% equity, 20% debt, 10% gold. After a great year in the stock market, it drifts to 82% equity, 12% debt, 6% gold. You're now taking more risk than you planned. Rebalancing brings it back to your target.

Why Rebalancing Matters

• Controls risk — prevents your portfolio from becoming too aggressive after a bull run
• Forces “buy low, sell high” — you sell what's gone up and buy what's lagged
• Reduces emotional decisions — it's a systematic process, not a reaction to news

When to Rebalance

Two approaches — pick one and stick with it:

• Calendar-based: Rebalance once a year (January or April are common). Simple and effective.
• Threshold-based: Rebalance when any asset class drifts more than 5-10% from target. More responsive but requires monitoring.

For most people, once a year is plenty. Set a calendar reminder for January 1st.

How to Rebalance (3 Methods)

Method 1: Redirect New Investments (Best)

Instead of selling, simply direct your new SIPs toward the underweight asset class. If equity is overweight, pause equity SIP for a few months and increase debt SIP. No selling = no tax.

Method 2: Sell and Redistribute

Sell some of the overweight asset and buy the underweight one. Simple but triggers capital gains tax.

Method 3: Use Annual Bonus

When you get a bonus, invest the entire amount in the underweight asset class. This naturally rebalances without selling anything.