Read me first

1. Equity returns assumed are historical sensex returns computed for each financial year
2. Debt returns are historcial FD returns from RBI website
3. The last few debt returns (in red) have been added by hand as I could not get hold of actual data
4. Rebalancing a porfolio may involve transaction costs especially in SIP mode if the holding period of
5. Debt instruments are taxable* so the final corpus will be lower in both cases and this tax may impa
6. The rebalancing shown here is done during the growth phase of the portfolio when the goal if far aw
7. Close to goal (2-3 year) the equity component will be gradually or abruptly decreased and pushed t
8. The above step does not constitute rebalancing is the sense that it is usually used
9. The tool is only an indicator you would need to make a suitable choice depending on your personal
* If the direct tax code comes to effect long term equity investments will also become taxable

ancial year

get hold of actual data

e if the holding period of equity is less than an year
es and this tax may impact the benefit of rebalancing
io when the goal if far away
decreased and pushed to debt

ending on your personal situation.

become taxable

This is an illustration of portfolio rebalancing as found at

http://www.jagoinvestor.com/2008/07/portfolio-rebalancing-today-i-am-going.html
An investment of 1 lakhs is considered. Of this 30% is invested in equity and 70% in debt instruments
No Rebalancing. No futher changes are then made. The money is allowed to grow.
Year
Sensex investment Total Equity
FD
investment
return
return
1
30%
30000
39000
9.0%
70000
2
-35%
39000
25350
9.0%
76300
3
40%
25350
35490
9.0%
83167
4
60%
35490
56784
9.0%
90652
5
-30%
56784
39748.8
9.0%
98811

Rebalancing with 30% equity and 70% debt

Each year 30% of total corpus earned is invested in equity and 70% in debt irrespective of
Year
Sensex Investment Total Equity
FD
Investment
return
return
1
30%
30000
39000
9.0%
70000
2
-35%
34590
22483.5
9.0%
80710
3
40%
33137
46392.108
9.0%
77320
4
60%
39201 62722.130016
9.0%
91470
5
-30%
48727 34109.078329
9.0%
113697

In this case the rebalanced porfolio has done better.

Is rebalancing crucial? It can be most times. The most important thing is what is your expected corpus
is lower then the corpus achieved with no rebalancing than your goal can be achieved.
However there is no way of knowing this. Have a look at the sample data. It seems advantageous mo
In this example the rebalanced portfolio is 7% higher. A difference of greater than 5% can be taken as

d 70% in debt instruments

lowed to grow.
Total FD Total Corpus Equity

Asset Allocation
Before investment
After Investment.
EquityDebt
Equity

Debt

76300
83167
90652
98811
107704

115300
108517
126142
155595
147452

34%
23%
28%
36%
27%

66%
77%
72%
64%
73%

30%
34%
23%
28%
36%

70%
34%
66%
23%
77%
28%
72%
36%
64%
27%
Asset Allocation
Before investment
After Investment.
in debt irrespective of returns earned the previous year
EquityDebt
Equity
Total
Total Corpus Equity
Debt
76300
87974
84279
99702
123930

115300
110457
130671
162424
158039

34%
20%
36%
39%
22%

66%
80%
64%
61%
78%

30%
30%
30%
30%
30%

at is your expected corpus for a goal. If this amount

e achieved.
t seems advantageous more often to rebalance
r than 5% can be taken as significant.

70%
70%
70%
70%
70%

34%
20%
36%
39%
22%

cation
After Investment.
Debt
66%
77%
72%
64%
73%

cation
After Investment.
Debt

66%
80%
64%
61%
78%

Enter data only in green cells

Enter no of years (max 32)
Choose a starting year between
Starting year

25
1980 and
1987

Lumpsum investment

% in equities

1987

100

70% % in FDs

30%

Total must be 100%

Equity corpus
Debt Corpus Total corpus
% Equity %Debt
no rebalancing
2,387
247
2,635
91%
9%
annual rebalancing
2,186
1,162
3,348
65%
35%
The % equity and debt shown here represents the final asset allocation
% difference bet the two corpuses
27%
+ve means rebalanced portfolio is higher
Click on the macro to find out the % difference
between the two corpuses for all possible
investment durations between
1980
and
1987
Average % difference bet the two corpuses
14.7%
Year
1980
1981
1982
1983
1984
1985
1986
1987

% difference
10.4%
5.5%
7.0%
1.3%
21.8%
17.8%
26.6%
27.1%

CAGR(rebal) CAGR(none)
16.10%
15.64%
16.99%
16.74%
16.70%
16.39%
17.37%
17.31%
15.49%
14.58%
16.31%
15.55%
15.02%
13.94%
15.08%
13.98%

Annual CAGR
No
With
RebalancingRebalancing

CAGR
13.98%
15.08%

-12.7%
15.6%
13.4%
19.3%
44.7%
24.1%
28.4%
22.6%
20.5%
18.4%
18.1%
16.3%
17.3%
13.8%
12.7%
11.2%
13.8%
13.9%
16.1%
16.0%
16.1%
13.2%
15.2%
15.0%
14.0%

-12.7%
17.5%
14.7%
20.0%
43.2%
27.3%
30.2%
24.9%
22.6%
20.6%
20.0%
18.2%
18.8%
15.8%
14.7%
13.2%
15.5%
15.3%
17.1%
16.9%
16.8%
14.5%
16.2%
16.0%
15.1%

Year of Year
return

1980
0
1981
0
1982
0
1983
0
1984
0
1985
0
1986
0
1987
1
1988
2
1989
3
1990
4
1991
5
1992
6
1993
7
1994
8
1995
9
1996
10
1997
11
1998
12
1999
13
2000
14
2001
15
2002
16
2003
17
2004
18
2005
19
2006
20
2007
21
2008
22
2009
23
2010
24
2011
25
Note 35% returns listed again
generated in the financial yea

No Rebalancing
Sensex investment Total Corpus
FD
return
return

35%
0
0
7.5%
26%
0
0
8.0%
-3%
0
0
8.0%
16%
0
0
8.0%
44%
0
0
8.0%
62%
0
0
8.5%
-11%
0
0
8.5%
-22%
70
54.639666118
9.0%
79%
0
97.876009092
9.0%
9%
0
107.12732189
9.0%
50%
0
160.19652794
9.0%
267%
0
587.72239204 12.0%
-47%
0
312.79175484 11.0%
66%
0
518.3190297
10.0%
-14%
0
447.2670272
11.0%
3%
0
461.75777882 12.0%
0%
0
460.97323458 12.0%
16%
0
533.9221334
11.0%
-4%
0
512.96574967 10.5%
34%
0
685.9659848
8.5%
-28%
0
494.36985657
8.5%
-4%
0
475.84940042
7.5%
-12%
0
418.15659534
4.3%
83%
0
766.79598715
4.0%
16%
0
890.54275413
5.3%
74%
0
1547.143193
6.0%
16%
0
1792.9441963
6.3%
20%
0
2145.755937
7.0%
-38%
0
1331.5992633
8.0%
81%
0
2403.9697468
9.0%
11%
0
2667.0389529 10.0%
-10%
0
2387.1267341 11.0%
35% returns listed against 1980 actually is the return
ated in the financial year 1980-1981

Monthly

Total

0
0
0
0
0
0
0
30
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0

0
0
0
0
0
0
0
33
36
39
42
47
53
58
64
72
81
90
99
107
116
125
130
136
143
151
161
172
186
203
223
247

Asset Allocation
After Investment
Equity
Debt
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
63%
37%
73%
27%
73%
27%
79%
21%
93%
7%
86%
14%
90%
10%
87%
13%
87%
13%
85%
15%
86%
14%
84%
16%
86%
14%
81%
19%
79%
21%
76%
24%
85%
15%
86%
14%
91%
9%
92%
8%
93%
7%
88%
12%
92%
8%
92%
8%
91%
9%

Year of
return

Year

1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011

0
0
0
0
0
0
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25

Annual Rebalancing
Sensex Investment
Total
FD
Monthly
return
return
35%
26%
-3%
16%
44%
62%
-11%
-22%
79%
9%
50%
267%
-47%
66%
-14%
3%
0%
16%
-4%
34%
-28%
-4%
-12%
83%
16%
74%
16%
20%
-38%
81%
11%
-10%

0
0
0
0
0
0
0
70
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0

0
0
0
0
0
0
0
54.639666
109.51605
105.78903
157.99924
532.51891
224.34436
492.83316
382.38424
428.68378
438.84935
526.88652
499.8801
698.57683
474.96722
526.50382
478.88706
927.24979
937.04888
1582.1518
1619.071
1889.3264
1135.2051
2504.5847
2448.3667
2185.816

7.5%
8.0%
8.0%
8.0%
8.0%
8.5%
8.5%
9.0%
9.0%
9.0%
9.0%
12.0%
11.0%
10.0%
11.0%
12.0%
12.0%
11.0%
10.5%
8.5%
8.5%
7.5%
4.3%
4.0%
5.3%
6.0%
6.3%
7.0%
8.0%
9.0%
10.0%
11.0%

0
0
0
0
0
0
0
30
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0

Total

0
0
0
0
0
0
0
33
29
45
49
70
201
140
211
199
211
216
246
243
306
252
243
225
364
414
636
724
847
648
1040
1162

Asset Allocation
After investment
Equity
Debt
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
63%
37%
79%
21%
70%
30%
76%
24%
88%
12%
53%
47%
78%
22%
64%
36%
68%
32%
68%
32%
71%
29%
67%
33%
74%
26%
61%
39%
68%
32%
66%
34%
80%
20%
72%
28%
79%
21%
72%
28%
72%
28%
57%
43%
79%
21%
70%
30%
65%
35%

Enter data only in green cells

Enter no of years (max 32)
Choose a starting year between
Starting year

11
1980 and
2000

monthly contribution in 1st year

% increase or
decrease each year
% in equities

10000

60% % in FDs

40%

Total must be 100%

Equity corpus
Debt Corpus
Total corpus
% Equity
no rebalancing
2,541,984
822,462
3,364,446
76%
annual rebalancing
2,083,923
1,377,472
3,461,395
60%
The % equity and debt shown here represents the final asset allocation
% difference bet the two corpuses is
2.9%
if started at
2000
+ve means rebalanced portfolio is higher
Click on the macro to find out the % difference
between the two corpuses for all possible
investment durations between
1980
and
2001
Average % difference bet the two corpuses
7.6%
Start Year
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000

% difference
-16.5%
12.2%
4.2%
12.2%
15.4%
18.4%
16.6%
16.3%
12.0%
15.4%
10.7%
3.3%
6.4%
5.8%
3.7%
1.5%
-1.0%
8.9%
5%
4%
6%

CAGR(rebal)
29.32%
23.08%
25.93%
23.15%
21.46%
19.31%
18.62%
16.82%
17.30%
11.63%
8.94%
4.97%
8.51%
9.34%
13.44%
14.00%
14.66%
10.18%
14.88%
14.94%
13.14%

CAGR(none)
31.87%
21.47%
25.35%
21.52%
19.45%
16.93%
16.45%
14.68%
15.69%
9.57%
7.46%
4.50%
7.60%
8.53%
12.93%
13.78%
14.80%
8.95%
14.20%
14.43%
12.27%

2001

%Debt Final CAGR

24%
15.01%
40%
15.45%

11
15.02%
15.46%
CAGR at the end of each investment year
CAGR at the
Without
With
end of year rebalancing
rebalancing
1
-13.36%
-13.36%
2
-3.70%
-4.04%
3
-4.25%
-4.82%
4
13.08%
14.23%
5
12.87%
13.47%
6
21.57%
21.07%
7
19.83%
19.09%
8
19.23%
18.25%
9
9.54%
10.74%
10
15.71%
16.25%
11
15.02%
15.46%

Final CAGR is the last entry

Relation between CAGR and annual returns:

CAGR at the end of the second investment year is 9.8%
CAGR at the end of the first investment year is 40.75%. This is also t
annual return after the first year. Using both these the effective annu
return at the end of the second year is calculated to be -21.99%
That is returns at the end of year one is 40.75% and at the end of
year two is -21.99%, the CAGR at the end of year two is 9.8%
The formula is: (1+40.75%)*(1-21.99%)-1=9.8

Effective annual returns

Without
With
rebalancing rebalancing
-13.36%
-13.36%
11.14%
10.76%
-0.57%
-0.82%
18.10%
20.02%
-0.18%
-0.66%
7.71%
6.70%
-1.43%
-1.63%
-0.49%
-0.71%
-8.13%
-6.35%
5.63%
4.97%
-0.60%
-0.67%

en CAGR and annual returns:

ment year is 9.8%
nt year is 40.75%. This is also the
ng both these the effective annual
s calculated to be -21.99%
is 40.75% and at the end of
end of year two is 9.8%
+40.75%)*(1-21.99%)-1=9.8%

Annual gain
or loss with
rebalancing
0.00%
-0.39%
-0.25%
1.92%
-0.48%
-1.01%
-0.20%
-0.22%
1.78%
-0.66%
-0.08%

Year of
return

Year

Sensex
return

1980
0
35%
1981
0
26%
1982
0
-3%
1983
0
16%
1984
0
44%
1985
0
62%
1986
0
-11%
1987
0
-22%
1988
0
79%
1989
0
9%
1990
0
50%
1991
0
267%
1992
0
-47%
1993
0
66%
1994
0
-14%
1995
0
3%
1996
0
0%
1997
0
16%
1998
0
-4%
1999
0
34%
2000
1
-28%
2001
2
-4%
2002
3
-12%
2003
4
83%
2004
5
16%
2005
6
74%
2006
7
16%
2007
8
20%
2008
9
-38%
2009
10
81%
2010
11
11%
2011
0
-10%
Note 35% returns listed against 1980 actually
generated in the financial year 1980-1981

Annual
invest. From
investment
Previous
year
0
0.00
0
0.00
0
0.00
0
0.00
0
0.00
0
0.00
0
0.00
0
0.00
0
0.00
0
0.00
0
0.00
0
0.00
0
0.00
0
0.00
0
0.00
0
0.00
0
0.00
0
0.00
0
0.00
0
0.00
72000
0.00
72000
51889.79
72000
119248.54
72000
168061.23
72000
440213.05
72000
594874.81
72000
1158564.06
72000
1426068.83
72000
1792855.62
72000
1157279.97
72000
2219250.15
0
0.00
isted against 1980 actually is the return
nancial year 1980-1981

No Rebalancing
Total Equity
FD
Corpus
return
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
51889.79
119248.54
168061.23
440213.05
594874.81
1158564.06
1426068.83
1792855.62
1157279.97
2219250.15
2541984.32
0.00

7.5%
8.0%
8.0%
8.0%
8.0%
8.5%
8.5%
9.0%
9.0%
9.0%
9.0%
12.0%
11.0%
10.0%
11.0%
12.0%
12.0%
11.0%
10.5%
8.5%
8.5%
7.5%
4.3%
4.0%
5.3%
6.0%
6.3%
7.0%
8.0%
9.0%
10.0%
11.0%

Annual invest. From

investment Previous
year
0
0.0
0
0.0
0
0.0
0
0.0
0
0.0
0
0.0
0
0.0
0
0.0
0
0.0
0
0.0
0
0.0
0
0.0
0
0.0
0
0.0
0
0.0
0
0.0
0
0.0
0
0.0
0
0.0
0
0.0
48000
0.0
48000
52080.0
48000
107586.0
48000
162198.4
48000
218606.3
48000
280603.2
48000
348319.4
48000
421089.3
48000
501925.6
48000
593919.6
48000
699692.4
0
0.0

Total Debt
Corpus
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
52080
107586
162198
218606
280603
348319
421089
501926
593920
699692
822462
0

Asset Allocation
Equity
Debt
Equity
Debt
Prior investment After investment
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
60%
40%
50%
50%
55%
45%
53%
47%
55%
45%
51%
49%
53%
47%
67%
33%
66%
34%
68%
32%
67%
33%
77%
23%
76%
24%
77%
23%
76%
24%
78%
22%
77%
23%
66%
34%
66%
34%
76%
24%
75%
25%
76%
24%
0%
0%
0%
0%

Year of

Year

return
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011

0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
1
2
3
4
5
6
7
8
9
10
11
0

Sensex
Annual
invest. From
return Investment Previous
year
35%
0
0
26%
0
0
-3%
0
0
16%
0
0
44%
0
0
62%
0
0
-11%
0
0
-22%
0
0
79%
0
0
9%
0
0
50%
0
0
267%
0
0
-47%
0
0
66%
0
0
-14%
0
0
3%
0
0
0%
0
0
16%
0
0
-4%
0
0
34%
0
0
-28%
72000
0
-4%
72000
62381.872929
-12%
72000
135392.74012
83%
72000
195831.62379
16%
72000
406100.21087
74%
72000
534434.26288
16%
72000
889264.40894
20%
72000
1076928.0376
-38%
72000
1316748.1902
81%
72000
1117031.4098
11%
72000
1806370.737
-10%
0
0

Annual Rebalancing
Total Equity
FD
Annual
Corpus
return investment
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
51889.788214
129347.55793
182248.08527
491137.09228
555256.79017
1053560.4691
1113984.4397
1375011.6502
861820.31939
2146588.4039
2083923.032
0

7.5%
8.0%
8.0%
8.0%
8.0%
8.5%
8.5%
9.0%
9.0%
9.0%
9.0%
12.0%
11.0%
10.0%
11.0%
12.0%
12.0%
11.0%
10.5%
8.5%
8.5%
7.5%
4.3%
4.0%
5.3%
6.0%
6.3%
7.0%
8.0%
9.0%
10.0%
11.0%

0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
48000
48000
48000
48000
48000
48000
48000
48000
48000
48000
48000
0

ncing
invest. From Total Debt
Previous
Corpus
year
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
52080
41587.915286
96307
90261.826744 144138
130554.41586 185697
270733.47391 335467
356289.50858 428547
592842.9393
680896
717952.02509 819569
877832.1268
999899
744687.60653 864029
1204247.158 1377472
0
0

Asset Allocation
Equity
Debt
Equity
Debt
Prior investment After investment
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
60%
40%
50%
50%
60%
40%
57%
43%
60%
40%
56%
44%
60%
40%
73%
27%
60%
40%
62%
38%
60%
40%
71%
29%
60%
40%
62%
38%
60%
40%
63%
37%
60%
40%
46%
54%
60%
40%
71%
29%
60%
40%
60%
40%
0%
0%
0%
0%