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When and how to rebalance, and why it makes you do the opposite of what feels natural
Published by The Retail Trader · AUG 09, 2026 · Features
You had decided that it would be 60% equity and 40% debt. After two years of a rally your equity has become 75% — without you doing anything. Now your portfolio is not what you built. Rebalancing is the name for bringing it back.
The asset that does well sees its share grow on its own. This means that without making any decision, your portfolio slowly becomes riskier — and it often happens in the part of the cycle where risk is highest.
So rebalancing is not an active decision. It is maintenance — returning to the plan you made with a calm mind.
Rebalancing means selling a little of what has run up a lot, and buying a little of what has lagged. It feels wrong every time.
And that is its whole benefit. It makes you do what you would never do on your own — sell high and buy low, without any prediction.
There are two common ways, and both are fine:
• By the calendar — once or twice a year, on a fixed date. The simplest and the least emotional.
• By threshold — when an asset drifts from its target by more than a set percentage. This is more responsive but needs more attention.
• A mix of both — look once a year, but also act if there is a big drift in between.
• Whichever you choose, write it down. The benefit of rebalancing lies in its regularity, not in clever timing.
Every rebalancing carries charges and can create tax. So rebalancing too often can backfire.
A cheap way is to always put new money into the asset that is behind its target. This corrects the allocation on its own without selling anything — and there are neither charges nor tax.
Rebalancing is not meant to raise returns. Sometimes it raises them, sometimes it lowers them. Its one sure job is this: to keep your portfolio's risk where you set it — and over a long journey that matters the most.
This article is for educational purposes only — it is not a buy or sell recommendation, makes no claim of guaranteed returns, and is not advisory. Rules, rates and mechanics are changed from time to time by the exchanges, SEBI and RBI, so verify every number yourself with your broker or an official source.