Rebalancing Sectoral Allocation
Ninad RamdasiCategories: DSIJ_Magazine_Web, DSIJMagazine_App, Editorial, Letter to Editor, Letter to Editor
The special story on the importance of portfolio diversification in your latest issue was crisp and concise. It is crucial to have a well-diversified equity portfolio in order to achieve one’s financial goals.
The special story on the importance of portfolio diversification in your latest issue was crisp and concise. It is crucial to have a well-diversified equity portfolio in order to achieve one’s financial goals. What is your view on rebalancing a portfolio on the basis of sectoral allocation? - Twinkle
Editor Responds: We appreciate your kind words of encouragement. If an investor executes sectoral diversification in his or her portfolio, they are less likely to experience major drops because while some sectors encounter tough times, the others may be thriving. As different sectors behave differently with market movements, they would have different returns in each period. Therefore, your original sectoral allocation would change at the end of a period. Hence, regular rebalancing is critical to maintain the desired weightage of the sectors in a portfolio. Rebalancing your portfolio on the basis of sectoral allocation helps you to further control the risk by ensuring that your portfolio is not dependent on the success or failure of one or two sectors. Hope this helps. Keep writing to us!