The Mutual Fund Show: How To Balance A Skewed Portfolio

As the markets touch new highs, there is a possibility that investors' portfolio has been skewed towards equities. But there is a need to balance it in order to manage fluctuations and avoid losses, say investment advisers.

"I think rebalancing asset allocation really brings a lot of value to the table in making sure that the behavioural aspect of the investor is taken care of and that brings in a discipline for the investor to stay through the course," Kirtan Shah, managing director of Credence Family Office Pvt., told NDTV Profit.

The other reason behind a skewed portfolio is the underperformance of assets, which happens when investors focus on one asset like equities or towards one sector.

When balancing the portfolio, the first thing to do is to balance the allocation and then the market cap, Kirtan said.

As investors get closer to their goal, they should start "allocating that money to fixed income, because you don't want to be in a situation that you are about to reach your goal and then there is volatility in equity and hence, you're not able to get the amount of money that you really need", he said.

According to Arnav Pandya, founder of Moneyeduschool, "You also have to use the capital loss, which might be there due to some reallocation within the portfolio effectively, because it can be used to set off several other gains which might occur either today or in the future."

In terms of cryptocurrency allocation, Pandya said one should have a good reason to invest in it and he would not personally recommend having it in the portfolio.

Shah concurred and advised retail investors to avoid investing in something that they don't understand.