Mutual Fund Review: Expert on When to Rebalance

A disciplined portfolio review separates compounding from drift. Yet many investors treat their mutual fund holdings as a buy-and-forget exercise, only to discover years later that allocation has slipped far from target.

Arijit Sen, a SEBI-registered investment adviser and co-founder of Merry Mind, laid out a clear framework: check the portfolio regularly for allocation slippage – for example, when a rally pushes equity exposure well beyond the original target. Once a year, reassess whether each fund still fits the goal, whether the expense ratio and tracking error remain competitive, and whether the fund manager's tenure and process are intact.

Rebalancing earns its value only when triggered by measurable deviations. Sen stressed that rebalancing is not market timing. It restores the portfolio to the risk profile and asset mix that match the investor's objectives. Whenever possible, use new contributions and systematic investments to rebalance. That minimizes transaction costs and tax impact.

Investors also make avoidable mistakes during portfolio reviews. Sen said the most common is focusing solely on absolute returns without considering risk, costs, and the fund's role inside the portfolio. That approach undermines compounding and increases churn.

Rather than chasing short-term performance, adopt a disciplined review process anchored to long-term goals, asset allocation, and risk management. Regular monitoring, timely rebalancing, and keeping emotions out of the equation help preserve portfolio health.