Rebalancing Calculation Logic
Core Rebalancing Formula
The mathematical foundation of portfolio optimization
totalPortfolioValue
Sum of all current mutual fund holdings
targetValue
Total Portfolio Value × Target Allocation %
adjustmentNeeded
Target Value - Current Value
positive
Positive result = BUY (underweight asset)
negative
Negative result = SELL (overweight asset)
Example Calculation
Real-world application with sample portfolio
Portfolio Scenario
Amit Kumar's Portfolio
HNI Client | ₹3.8 Cr AUM
Proposed Actions
Buy, Sell, and Hold decisions for each asset class
| Asset Class | Current | Target | Adjustment | Action |
|---|---|---|---|---|
| Equity Funds | ₹65 Cr (65%) | ₹60 Cr (60%) | ₹-5 Cr | SELL |
| Fixed Income | ₹25 Cr (25%) | ₹30 Cr (30%) | ₹+5 Cr | BUY |
| Commodities | ₹8 Cr (8%) | ₹8 Cr (8%) | ₹0 Cr | HOLD |
| Cash Reserve | ₹2 Cr (2%) | ₹2 Cr (2%) | ₹0 Cr | HOLD |
Rebalancing Strategies
Choose the approach that best fits your investment style
Time-Based (Calendar) Strategy
Review and rebalance at fixed intervals, typically annually or semi-annually.
Best For
Passive investors who prefer scheduled reviews
Example
Annual rebalancing on April 1st each year
Threshold-Based (Tolerance Band) Strategy
Only rebalance when an asset class drifts beyond a set percentage, such as ±5% from the target.
Best For
Tactical investors and active managers
Example
If equity was 60% target but hits 65%, trigger a SELL
Cash Flow Rebalancing
Instead of selling high-performing funds (which may trigger taxes), use new SIPs or bonuses to buy the underweight assets.
Best For
Tax-efficient rebalancing for long-term investors
Example
Monthly SIP of ₹50,000 goes 100% to underweight Fixed Income fund
Hybrid Strategy
Perform an annual review, but also rebalance immediately if a threshold (e.g., 5-10%) is breached between scheduled dates.
Best For
Balanced approach combining both time and threshold
Example
Annual review in April + immediate action if equity hits 70%
Key Takeaways
- Positive Adjustment = Asset is UNDERWEIGHT → BUY more
- Negative Adjustment = Asset is OVERWEIGHT → SELL
- Zero Adjustment = Asset is on TARGET → HOLD
- Choose wisely = Match strategy to client goals and tax situation