Portfolio Rebalancing Calculator
Portfolio Rebalancing Calculator
How far your mix of equity, debt and gold has drifted from your target, what to buy or sell in each to restore it, and how close you get by putting new money into the underweight parts only.
Rebalancing
Equity $7,00,000, debt $2,50,000, gold $50,000; targets 60/30/10; adding $1,00,000
Drift and the trades that remove it
- Va, V
- the value of one asset now, and of the whole portfolio
- wa
- that asset’s target in %
- N
- the new money you are adding
- Sa
- how far the asset is below its target amount, max(Tradea, 0)
Worked example
Equity $7,00,000, debt $2,50,000, gold $50,000; targets 60/30/10; adding $1,00,000
Now: equity 70%, debt 25%, gold 5% of 10,00,000, so equity is 10.00 points over target
After adding 1,00,000 the portfolio is 11,00,000; targets are 6,60,000 / 3,30,000 / 1,10,000
Full rebalance: sell $40,000 of equity, buy $80,000 of debt and $60,000 of gold
New money only: debt is 80,000 short and gold 60,000; split 1,00,000 in that ratio: $57,143 to debt, $42,857 to gold
That leaves 63.64% / 27.92% / 8.44%: the largest drift is down to 3.64 points with nothing sold
Rebalancing by selling, or by where new money goes
Once you have chosen a mix, markets move it for you. After a good run in shares, equity is a larger part of the portfolio than you planned and the portfolio is riskier than you meant it to be; after a fall it is smaller. Rebalancing brings each part back to its target. Choosing the target is a separate question, which the asset allocation calculator covers with the common age-based rules; this page starts from a target you already have.
Two ways to do it. A full rebalance sells what is overweight and buys what is underweight, so the mix is exactly on target afterwards. Selling has costs: a sale can create a capital gain that is taxed, and units sold inside a fund’s load period may carry an exit load (see the mutual fund exit load calculator). The other way is to leave existing holdings alone and send new money, a bonus or the next few SIP instalments, to the parts that are below target. It sells nothing, so it costs nothing extra, but unless the new money is large compared with the drift it only narrows the gap. The page splits the new money between the underweight assets in proportion to how far each is short, so every underweight asset closes the same fraction of its gap. In the example that brings the largest drift from 10 points to 3.64 without a single sale.
How often. Common approaches are a fixed date, such as once a year, or a band, rebalancing only when an asset drifts more than a set number of points from target. Research by fund managers such as Vanguard has found no single best frequency; the point is to control risk, not to add return, and trading too often mainly adds costs. Count the investments you think of as part of the plan in the same way every time, for example whether provident fund balances sit in debt.
Enter 0 for an asset you do not hold and give it a 0% target. This is arithmetic on the figures you enter, not financial advice.
Frequently asked questions
How do I calculate how much to rebalance?
Add up the portfolio including any new money, multiply by each asset’s target percentage, and subtract what you hold in that asset now. A positive answer is a buy, a negative one a sale.
Can I rebalance without selling?
Yes, by putting new money only into the underweight assets. In the example, $1,00,000 split between debt and gold cuts the largest drift from 10 to 3.64 points. It reaches the target exactly only if the new money covers every shortfall.
Does rebalancing have tax consequences?
Selling can. A sale may create a capital gain that is taxed, and fund units sold inside their load period can carry an exit load. The page does not calculate either; rebalancing with new money avoids both.
How often should I rebalance?
There is no single right answer. Many investors rebalance once a year or when an asset drifts more than about 5 points from target; the aim is to keep risk where you chose it, not to trade often.
Related calculators
References
- Jaconetti CM, Kinniry FM Jr, Zilbering Y. Best practices for portfolio rebalancing. Vanguard Research, 2010: rebalancing controls risk rather than adding return; no frequency or threshold is universally optimal; costs and taxes argue against rebalancing too often.
- SEBI / AMFI mandatory risk statement: “Mutual fund investments are subject to market risks, read all scheme related documents carefully.”