The Rebalance Ritual You Cannot Ignore

Indian investors entered 2025 with optimism, but returns across equity categories have been underwhelming. On an average, Large-Cap funds delivered modest gains of 2.76 per cent, while Mid-Caps faced volatility, returning -1.61 per cent. Small-Cap funds, after a stellar run in previous years, saw returns fall sharply at -10.13 per cent. Debt Funds, though not offering massive returns, provided stability with Government Bond funds at 6.55 per cent, Corporate Bonds at 7.65 per cent, and Short Duration at 7.4 per cent. For many of you, your portfolio might be giving much lower return and hence the natural reaction might be frustration: ‘Why isn’t my portfolio growing as expected?’ This is where the power of rebalancing comes in. Instead of dwelling on short-term market fluctuations, it is time to strategically adjust your portfolio to reflect changing market conditions and your evolving financial goals.[EasyDNNnews:PaidContentStart]

A key takeaway for investors is that rebalancing helps maintain the intended risk profile. Rebalancing prevents one from unintentionally holding more risk than desired, especially when specific segments of the market (like mid- or small-caps) have risen disproportionately. Conversely, this ritual of rebalancing also allows one to buy into underperforming segments at discounted levels. This contrarian action, adding more to out-of-favour sectors like mid-cap or small-cap, can significantly contribute to long-term portfolio growth when these sectors recover.

Rebalancing forces investors to do what emotions often resist: trim exposure to funds that have overperformed and add to those that have underperformed. This contrarian approach is central to long-term investing. The Indian market has shown that leadership rotates; what underperforms today could outperform tomorrow. A simple annual rebalance, reviewing equity-debt allocations and SIP distribution, helps you to stay aligned with your long-term goals. As we approach year-end, it is an ideal time for rebalancing. By reviewing your portfolio, you can ensure it remains in line with your risk tolerance and growth objectives. While not exciting, rebalancing is essential, especially now, when uncertainty and volatility are affecting the markets. It is about maintaining discipline and positioning yourself for long-term success, ensuring that your portfolio works for you regardless of market conditions.

Shashikant Singh
Executive Editor

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