Portfolio review & rebalancing

Portfolios drift, and drift changes the risk you are carrying

A portfolio set up sensibly does not stay that way on its own. Left alone for five years, the parts that performed best grow into an outsized share of the whole, and the allocation you deliberately chose quietly becomes something you never chose at all.

Suppose you settled on a balance between equity and debt that suited your horizon and temperament. After a strong run in equities, that balance has shifted meaningfully towards the riskier side. Nothing was decided and no instruction was given, but the portfolio is now more volatile than the one you signed up for — and it became so at precisely the point in the cycle when the accumulated gains were largest and most exposed.

That is the core argument for periodic review. Not to chase performance, not to replace funds that had a weak year, but to check that what you hold still matches what you intended to hold.

What to actually check

Asset allocation against target

Start here, because it is the only item that genuinely changes your risk. Compare the present split across equity, debt and anything else against what the horizon calls for. If it has drifted materially, that is a finding. If it has drifted by a percentage point or two, it is noise.

Overlap between schemes

Holding eight equity funds feels diversified and frequently is not. Funds within the same category often hold substantially the same large companies, so the portfolio behaves like one fund with eight sets of statements. Overlap analysis compares the underlying holdings and shows how much of the apparent variety is real. Our portfolio analyzer runs this on your actual holdings.

Whether each holding maps to a goal

Every scheme should be attached to something — a goal, a horizon, a purpose. Holdings that map to nothing are usually historical: bought on a recommendation, or during a period of enthusiasm, and never revisited. They are not necessarily bad investments, but they are unmanaged ones.

Cost

Expense ratio compounds against you over long holding periods, so it is worth knowing what you are paying. Regular and direct plans differ in cost, and the difference reflects whether distribution and ongoing service are being remunerated. Which suits you depends on whether you want that service, and it is a legitimate question to ask directly rather than something to be embarrassed about.

Category consistency

Since SEBI's scheme categorisation framework, funds have defined mandates. A fund should be doing what its category says. Where a scheme has changed its mandate, merged with another, or been repositioned, that is worth noticing — it may no longer be the thing you bought.

The administrative layer

KYC current, bank mandates valid, nominations recorded and up to date across every folio, contact details correct, and a consolidated account statement you can actually locate. None of this affects returns and all of it affects whether your family can access the money without difficulty. Our statements and KYC page has the links.

How to rebalance without doing damage

Having identified drift, the instinct is to correct it by switching. That instinct is right in principle and often expensive in execution, because a switch is a redemption and a fresh purchase, carrying capital gains and possibly exit load.

A better sequence is:

• Redirect new contributions first. If equity has grown beyond target, point new SIP instalments at the underweight side. This corrects drift over time without triggering anything, and for anyone still accumulating it does most of the work.
• Use withdrawals to rebalance. If you are drawing money anyway, draw it from the overweight asset.
• Switch only what is necessary, and only when the drift is material. Rebalancing to a precise target every quarter generates tax and load costs that outweigh the benefit.
• Consider the timing. Holding periods affect capital gains treatment, so a switch a few weeks early can cost more than the same switch made later.
• Consolidate deliberately. Reducing twelve schemes to five is usually sensible, but doing it in one month creates a large realised gain. Staging it over financial years is often better.

Reasons not to switch

Most switching destroys value, and the commonest triggers are bad reasons.

One weak year is not evidence of anything. Every strategy underperforms periodically, and a fund whose style is out of favour is not the same as a fund that is failing. Judge over a period that includes different market conditions.

A better-performing fund exists. There is always one, visible only in hindsight. Chasing last year's leader systematically buys high.

Someone recommended something new. Ask what problem it solves that your existing holding does not. If there is no answer beyond recent performance, there is no case.

A new fund offer. An NFO has no track record and no particular advantage from being new. The case has to be that it does something your portfolio lacks.

The genuine reasons to exit are narrower: a sustained change in how the fund is managed, a mandate change that makes it no longer the thing you bought, material and persistent deviation from its category, or a change in your own circumstances that makes the holding inappropriate.

How often

Annually is enough for most people, with an additional look when something material changes — a new goal, a change in income, a goal drawing close and needing de-risking. Reviewing monthly encourages action for its own sake, and action is the most reliable way to convert a reasonable portfolio into a worse one.

How Rytvae helps

We review holdings against goals rather than against a league table, run overlap analysis, and propose the smallest set of changes that actually fixes something — including, often, no changes at all. Start with the portfolio analyzer to see your own holdings mapped, or the risk profiler to check whether your allocation matches your temperament. See also goal-based investing.

Frequently asked questions