How to Rebalance Your Portfolio Every Year

If equity rallies, your portfolio quietly becomes riskier than you intended. Rebalancing brings it back, and makes you trim what has risen and add to what has lagged, without any forecasting.

What does rebalancing look like?

How do I rebalance without paying much tax?

1. Direct new money first. Point your SIPs and any lump sums towards the asset that has fallen behind.
2. Use the tax-free limit. As of FY 2026-27, long-term equity gains up to ₹1.25 lakh a year are not taxed. See how this works.
3. Mind holding periods. Selling equity within 12 months incurs 20% tax, and many funds charge an exit load within the first year.
4. Consider hybrids. A hybrid fund rebalances internally without triggering tax for you.

How often should I rebalance?

Once a year is enough for most people. Pick a date you will remember, such as your birthday or the start of the financial year. Act only if the drift is meaningful, around 5% or more. Frequent changes add cost without adding much benefit.

Should my target change over time?

Yes, as goals get closer. Move gradually to lower-risk funds starting about three to five years before you need the money. That is a change of plan rather than a rebalance, and it protects what you have already built.

Include EPF, PPF and FDs when you calculate your overall mix. A consolidated statement makes this easier.