New Feature: One-click Portfolio Rebalance - Our Most Advanced Feature Yet

As promised, we are offering you a feature we haven’t seen in any other investment platform - one-click portfolio rebalancing for your goals to keep you on track to achieve them comfortably! :)

Earlier we had implemented SIP rebalancing, which is relatively straight-forward where you update your ongoing SIPs to new funds when we update our Mutual Fund recommendations. This does not change your old/existing investments, just your future SIPs.

What is Portfolio Rebalancing?

Portfolio Rebalancing is for the investments that you have already made in your various goals. They may contain some old Mutual Funds or may have an equity-debt split (asset allocation) which does not match your goal plan.

For these goals, we need to calculate how much money is to be redeemed from each fund and how should it be re-allocated to new/existing funds so that your rebalanced portfolio is close to the recommended portfolio for that goal.

After calculating this, we need to redeem those amounts from each fund individually, wait for the money to reach your account and then put in the respective investment requests for each target fund individually (while also keeping in mind all the amount constraints for these transactions).

Sounds like a lot of un-interesting work and it is. Which is why many people don't end up doing it and instead keep lugging around their age-old investments. But they pay a heavy price for it - by earning sub-par returns on their now out-of-favour investments.

It is like continuing to use Windows '98 without upgrading. How do you think that would have turned out for you?

But you are not going to be one of those people - because you use Goalwise! Our One-Click Portfolio Rebalance feature allows you to generate all the required rebalancing transactions for your goal in, you guessed it, just one click!

Why is it important?

Getting rid of old out-of-favour funds and replacing them by our latest recommendations keeps your money invested in the best funds always. It keeps your investments in sync with our Mutual Fund selection strategy thereby maximising your chances of achieving the market-beating returns that the strategy generates.

Where applicable, rebalancing also keeps your asset allocation in line with your risk profile and your goal plan settings. For e.g. in Life goals such as Retirement or Children's education, as you approach your target date we recommend decreasing risky equity exposure and increasing debt investments so that your risk is lowered with time.

This can happen in your Wealth goal also. Say your original asset allocation was 60% equity and 40% debt (moderate risk profile) and after a couple of years, because of markets going up your equity investments have risen much more than the debt ones and your current asset allocation is 75% equity and 25% debt.

Such a drift in asset allocation is inevitable over time because equity and debt investments grow with different rates. This is more risk than is appropriate for your risk profile. We need to rebalance it back to 60-40 by selling some equity and putting back the amount in debt. Conversely, when the market crashes. A 60-40 allocation can become 40-60 during a major market downturn since equity will lose value and debt will keep growing. In this case, we will be selling debt and buying equity.

You will notice that this automatically implements buying more equity when it is low and selling some when it is high (over a time frame of a few years).

Think of it as updating your laptop’s operating system or your favourite app - only here it is for your investments so that you have the latest funds and the recommended asset allocation to have better chances of reaching your goal. And that too for free.

Speaking of free, to ensure that you don’t have to pay any exit load, we will be rebalancing your exit load free investments only. So in equity funds you will have to pay no exit load. We will also be bearing the transaction charges ourselves. Isn't that sweet? We are like that only. :D

So do you have any goals that need rebalancing? Go find out!

How does Portfolio Rebalancing work exactly?

Portfolio Rebalancing involves the following calculations:

  1. We first calculate recommended portfolio as per our current Mutual Fund recommendations and your goal plan (risk profile, time remaining etc). Ideally, this is the portfolio you should have today for your goal.

  2. We then calculate the fund-wise difference between the recommended portfolio and your current portfolio. Some funds might be replaced completely (in case of them no longer being recommended), while others may just see a change in recommended amount (in case of rebalancing between equity and debt). This produces a list of redeem and re-invest transactions that if executed will convert your current portfolio to the recommended portfolio by redeeming some money from existing funds and investing them in target funds.

  3. Since redemptions might involve exit loads (1% for equity funds if done within a year), we want to use only the exit load free amounts for rebalancing. Where applicable we will also use only the equity tax free amount for rebalancing. In order to do this, we modify each redeem transaction to use only the exit load free amount/tax free amount (for equity funds) available in that fund.

  4. Subsequently, we also modify the invest transactions so that total amount being redeemed and re-invested remains the same (while also satisfying fund level minimum transaction constraints).

  5. These modified redeem and re-invest transactions are the Portfolio Rebalance transactions for your goal which will take your goal as close to its recommended allocations as possible without incurring any exit load and with minimum taxes.

  6. Once you confirm rebalancing in your goal, the redeem transactions will go in progress the next business day. The invest transactions will be scheduled via NACH after a gap of 10 business days to ensure that all the money from the redemptions has reached your bank account before we start re-investing.

  7. Phew. You are welcome!

Some FAQs for Portfolio Rebalancing

Q1. What does rebalancing mean?

Rebalancing means making changes in your existing funds/asset allocation so that it matches the recommended funds/asset allocation as per your goal plan.

It involves redeeming money that is invested in old funds and re-investing them in the current fund recommendations as per your goal plan.

In some cases, it may also involve redeeming some amount from equity funds and re-investing it in debt funds (or vice-versa) when your current asset allocation does not match the recommended asset allocation as per your goal plan.

This could be because either your current asset allocation is not according to your chosen risk level or in case of life goals, because you have now moved closer to your goal hence need to lower risk by increasing debt and decreasing equity.

For each goal that needs rebalancing, you will be shown exactly what the changes are going to be before you decide.

Q2. Why should I rebalance?

Rebalancing has two benefits both of which increase your chances of achieving your goals:

a) It moves your money from old or non-recommended funds to our latest recommended funds (which we update yearly). This helps you earn higher returns on average than if you stayed invested in old funds. For more details about our Mutual Fund selection strategy see here.

b) It keeps your risk under control by adjusting the asset allocation if it has deviated from what it should be according to your goal plan.

Q3. Which goals are recommended for rebalancing?

Currently, we are recommending rebalancing only in Wealth or Life goals (e.g. Retirement etc) which have some exit load free units available for rebalancing.
Also, minimum exit-load free amount to be rebalanced should be Rs. 25,000 Rs. 10,000 (Updated Dec 4, 2018) because of minimum transaction limits and also because changes should be big enough to make a significant difference to your portfolio.

Q4. How will rebalancing transactions be executed and how long will the process take?

Redemption will be executed as how it occurs normally. The redeemed amount will reach your bank account in 3-5 business days and thereafter the re-investment will be done via the NACH that you have registered with us.

So although the entire rebalancing may take about 10-15 business days (depending on your NACH limit), you won’t have to do a thing after you initiate the rebalance process!

Also, where possible we will use a switch transaction to combine redemption and re-investment between funds of the same Mutual Fund company (e.g. between funds of Birla Mutual Fund company). Read more about switch transactions in Q8 below.

Q5. Are there any charges associated with rebalancing?

No, Goalwise does not charge anything extra for this. In fact, we bear the transaction charges for this ourselves.

Also since we will be rebalancing only exit-load free units, you won’t face any penalties for redeeming money from old funds. There might be some tax implications though especially for Debt Mutual Funds.

You will be able to check out these details on the rebalancing page of each goal inside.

Q6. Why rebalance only exit load free amount?

We rebalance only exit load free amount so that you don’t get charged any exit load for carrying out rebalancing.

This might result in partial rebalancing in some cases since the whole amount may not be exit load free. For the remaining amount, you should wait till it becomes exit load free. Ideally, portfolio rebalancing is recommended to be done twice a year (eg January and July) to rebalance the full amount w/o incurring any exit load charges.

Q7. What will happen when I approve rebalancing for my goal?

Once you approve rebalancing for your goal, the corresponding redeem and re-investment transactions will go in progress. The redeemed amount will reach your bank account (unless it is part of a switch transaction) in 3-5 business days and thereafter be re-invested after a few days via your registered NACH.

You won’t have to do anything manually. Just make sure you don’t spend the redeemed amount!

Q8. What are switch transactions?

When you want to redeem and re-invest in Mutual Funds of the same Mutual Fund company (e.g. redeem from Birla MNC Fund and re-invest into Birla Small and Midcap Fund), then one can pair the two transactions (redeem + purchase) as a switch-out (for redeem) and switch-in (for invest) transaction for faster execution. Here, the money stays with the Mutual Fund company instead of being sent to your bank account and is switched over to the target Mutual Fund at the Mutual Fund company's end itself. This avoids un-necessary movement of money through your bank account, thereby saving several days in execution. However please note that these are still redeem and invest transactions - i.e. the same taxation and exit loads rules apply - only without any money movement.

Q9. What will happen to my ongoing SIPs in this goal?

Your on-going SIPs, if any, will not be affected by this. Even if your SIP date falls during the rebalance process, it will go ahead as usual. So nothing to worry about.

Q10. Can I transact in this goal when rebalance is in progress?

Technically you can transact but it is recommended NOT to redeem while rebalancing is in progress otherwise it may conflict with the redemptions for rebalancing and might even lead to redemption failures.
Your ongoing SIPs can continue without any issue. Also make sure, that you DON’T spend the money that gets redeemed to your account. It will need to be re-invested for your goals!

Q11. I don't have NACH, how can I send it?

You can download and upload the signed NACH mandate from the My Account section.

If you have any further questions regarding how rebalancing will work for your goals, please check out the feature from your dashboard (top-right corner drop-down menu) and/or feel free to ping us on chat. :)