Investor Q&A: Should I rebalance when the NAVs are high?


We recently updated our list of recommended Mutual Funds for 2020 based on our MF Selection Strategy.

Based on this, we recommended our investors with ongoing SIPs to update their SIPs to the latest recommendations.

We also recommended all investors to use our one-click Portfolio Rebalancing feature to move their existing investments to the new funds (exit load free amount only).

One concern that some investors had is this -

Currently the markets are at a high and all the Mutual Funds have high NAVs. If I redeem and reinvest now, I will invest at a high NAV. Is it really advisable to rebalance my portfolio in this case?

Interestingly last year, when the markets were not doing so well, we faced the opposite question by some investors - Investor Q&A: Should I rebalance even if my funds are in a loss?. They were worried that by rebalancing when their funds were in loss, they will be exiting at low NAVs, thereby making that loss permanent.

The answer to both the concerns is the same - Yes, you should rebalance.

Rebalancing involves both redeeming and re-investing. So whether the market or NAVs are high or low, it does not matter. If the NAVs are low, you get a low value when you redeem but you get an equally low entry when you re-invest. Similarly, if the NAVs are high, you get a high value when you redeem as well and not just when you re-invest.

Rebalancing is a market/NAV/units agnostic step because you are not exiting or entering the market but just moving your money from an old fund to a new fund which is supposed to perform better.

At the end of the day, you initially had Rs X in a fund, and now you will have the same Rs X in a different fund (irrespective of high or low NAVs/units). If the new fund does better than your old fund going forward, then the Rs X will grow more than it would have grown had it stayed invested in the old fund. (No one knows the future for sure, but this is what we expect to happen on average based on our strategy).

Also, rebalancing does not just involve change of funds. It also involves rebalancing of asset allocation along your glide path. If you are closer to your goal, then you should gradually move from equity to debt. This is also accomplished via rebalancing only.

So go ahead and rebalance your portfolios in just a click!