What is your advice for rebalancing asset allocation in the situation below?

In a Rs 1.1 crore portfolio, I have 87 percent equity (Rs 97 lakhs, mostly MFs) and 13 per cent (Rs 15 lakhs) debt. I want to bring it to 60 per cent equity and 40 per cent debt. I have identified six mutual funds which currently have Rs 35 lakhs long term profit.

Selling equity MFs for profit booking at one go has tax implications and may not be the right strategy. But if I can move this Rs 35 lakhs profit to debt funds, it will help to balance my asset allocation.

What is the most tax efficient and sensible way to do the rebalancing?

I am making future investments in SIP mode in conservative funds such as Mirae Asset Hybrid Equity. I have a 10 year investment horizon.

Ans: Please continue with the SIPs, there are too many funds; try to restrict to 4 to 6 funds as they provide adequate diversification, post that portfolio gets over diversified.

Ans: Hello;

Through PPFAS flexicap fund you also get exposure to US tech stocks like Alphabet, Microsoft, Amazon and Meta.

My suggestion would be to allocate entirely to PPFAS flexicap fund, monitor performance for 2-3 years and then make changes, if required.

Also my advice would be to shift to Nippon India Multicap Fund.

Happy Investing;

You may follow us on X at @mars_invest for updates.

Ans: You have taken a great step by wanting to consolidate and balance your mutual fund portfolio. Since you are managing it yourself, it is essential to have a structured approach.

Below is a detailed guide to help you refine your investments.

Understanding Your Current Portfolio
You have multiple investments across different fund categories.
There is a mix of large-cap, mid-cap, small-cap, flexicap, multicap, and balanced advantage funds.
You also have exposure to thematic and sectoral funds.
Index funds are present, which are passively managed.
Now, let’s assess and create a balanced, simplified approach.

Disadvantages of Index Funds
They do not offer protection in a falling market.
They include all stocks in an index, even the underperforming ones.
Actively managed funds have the potential to outperform and deliver better long-term returns.
Fund managers in active funds adjust portfolios based on market conditions, which helps in downside protection.
You should reduce reliance on index funds and allocate more to actively managed funds.

Disadvantages of Direct Plans
You miss out on expert guidance from a Certified Financial Planner.
Market conditions change, and fund performance needs regular tracking.
A Certified Financial Planner helps in portfolio rebalancing, risk assessment, and taxation strategies.
Investing through an MFD with CFP credentials ensures better financial planning support.
Shifting to regular plans with the right advisor can optimize returns.

Key Issues in Your Portfolio
Too Many Funds: Managing multiple funds can be complex and lead to overlapping investments.
Sectoral Fund Exposure: Investing in sector-based funds increases risk.
Index Fund Exposure: They do not offer active risk management.
Need for Consolidation: Fewer funds with well-defined objectives will help optimize performance.
A balanced approach ensures you get the best from actively managed funds.

Steps to Balance Your Portfolio
1. Reduce the Number of Funds
Holding many funds does not mean better diversification.
Reduce overlapping funds that invest in the same market segment.
A well-diversified portfolio with fewer funds is easier to manage.
2. Focus on Actively Managed Funds
Move away from passive funds to benefit from fund manager expertise.
Active funds provide better downside protection during market corrections.
The right funds with experienced fund managers can outperform index funds over time.
3. Reduce Sectoral and Thematic Funds
Sectoral funds depend on industry performance and can be highly volatile.
They are not suitable for long-term wealth creation.
It is better to focus on diversified equity funds instead.
4. Maintain a Proper Asset Allocation
Large-Cap Funds: Stability and consistent growth.
Mid-Cap & Small-Cap Funds: Growth potential with higher risk.
Balanced Advantage Fund: Dynamic asset allocation for risk management.
Flexicap & Multicap Funds: Exposure across market segments.
Each category serves a purpose and should be included in the right proportion.

How to Consolidate Your Portfolio
Step 1: Retain a Few High-Quality Funds
Keep one large-cap fund for stability.
Have one or two flexicap/multicap funds for diversification.
Include one mid-cap and one small-cap fund for high-growth potential.
Retain a balanced advantage fund for market protection.
This reduces overlap and creates a well-balanced structure.

Step 2: Exit Unnecessary Funds Gradually
Sell underperforming and duplicate funds in a phased manner.
Avoid exiting everything at once to manage tax implications.
Invest in a few well-performing funds for better long-term results.
Step 3: Rebalance Portfolio Annually
Once a year, check if your asset allocation matches your risk tolerance.
Adjust investments based on market conditions and personal financial goals.
Ensure your portfolio remains aligned with your objectives.
Taxation Impact While Restructuring
Equity Funds (Held for Less than 1 Year): 15% short-term capital gains tax.
Equity Funds (Held for More than 1 Year): 10% tax on gains exceeding Rs. 1 lakh.
Balanced Advantage Funds: Taxed as equity.
Selling in a phased manner can reduce the tax burden.

Long-Term Portfolio Strategy
Keep a core portfolio of diversified funds.
Avoid unnecessary churning of investments.
Increase SIP amounts in well-performing funds over time.
Focus on long-term wealth creation rather than short-term market movements.
By simplifying and optimizing your portfolio, you can achieve better growth and stability.

Finally
You have already built a strong investment habit through SIPs.

Now, consolidating and refining your portfolio will help maximize returns.

Focus on active fund management, asset allocation, and long-term consistency.

A streamlined portfolio ensures better wealth creation with lower complexity.

If you need further insights, feel free to ask!

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment

Ans: Current Financial Snapshot
Retired State govt PSU employee, monthly pension > Rs?1?L

Immovable assets: one self-occupied flat and one rented house

Investment assets:

Mutual fund corpus: Rs?1?Cr

Stock investments: Rs?15?L

Bank/institution deposits: Rs?10?L

Your total investible corpus ≈ Rs?1.25?Cr

Existing equity exposure (mutual funds + stocks) ≈ 85% of corpus

You want to rebalance so that 25% of corpus is in debt

Key Strengths in Your Situation
Reliable pension income > Rs?1?L/month

Rental income on immovable asset adds stability

No mention of loan liabilities—likely debt?free

Significant equity exposure provides growth potential

Awareness of need to rebalance to debt instruments

This solid base, combined with income, gives you a strong starting point.

Why Debt Allocation Matters at This Stage
Debt investments offer capital preservation and stability

Builds income buffer and reduces equity drawdown risk

Ensures cash flow for expenses without needing to sell equity

Reduces portfolio volatility during market corrections

By keeping 25% in debt, you preserve capital and secure steady income.

How to Implement the 25% Debt Allocation
1. Determine target corpus allocation

Total investible corpus ≈ Rs?1.25?Cr

25% target debt allocation ≈ Rs?31?L

Current debt/deposit amount is only Rs?10?L

You need to shift ≈ Rs?21?L from equities to debt

2. Phased Rebalancing Strategy

Sell equity mutual funds and stocks gradually

Avoid selling large lumpsum outright

Allows capital gains to spread over years and taxes

3. Provide for tax efficiency in rebalancing

Equity: LTCG taxed at 12.5% above Rs?1.25?L/year, STCG at 20%

Debt: taxed at slab rate

Spread sales to stay under LTCG threshold annually

Suggested Debt Instruments for Allocation
1. Short?term and Ultrashort Debt Funds

Low interest rate risk, good liquidity

Suitable for monthly pension supplementation

Taxed per slab rate; maintain modest allocation

2. Banking?oriented Debt Funds

Low credit risk; ideal for capital preservation

Provide better post?tax returns than FDs in medium term

3. Hybrid Debt Funds (Conservative Hybrid)

Funds invest 75–80% in debt, 20–25% in equity

Provide stable and modest upside

Suitable as buffer when you shift out of pure equity

Step-by-Step Portfolios Rebalancing Plan
1. Identify equity investments to reduce

Preferably reduce underperforming mutual funds or stocks with no heavy gains

Sell equity funds across fund categories for broad distribution

2. Execute phased liquidations over 2 years

Example: Sell 10% every quarter = ~Rs?5.25?L per quarter

Over 2 years you transfer roughly Rs?21?L to debt instruments

3. Deploy proceeds into debt ladder

40% into liquid and ultra-short funds

30% into banking debt funds

30% into conservative hybrid funds

4. Periodic review and course?correction

Every 6 months review market value of debt component

If debt falls below 25%, sell small equity and rebalance

This renews the 25:75 debt:equity ratio

Maintaining Equity Exposure
After shifting Rs?21?L out of equity, remaining corpus is Rs?1.04?Cr

You may maintain ~75% equity allocation = approx Rs?78–80?L

You should retain:

Current Rs?1?Cr mutual funds less sold portion

Stocks reduced only modestly to fund rebalancing

Preserves growth exposure while honouring your comfort with volatility

Portfolio Monitoring and Adjustment
Every 6 months:

Check equity/debt ratio

Realign if debt is Rs?1?L/month is stable

Rental income further adds buffer

Debt allocation supplement:

Redeem monthly blending yields for living expenses

Improves self-reliance

You don’t need to sell equity prematurely for monthly cash flows.

Handling Capital Gains Tax
Spread LTCG over years via phased redemption

Use gains under Rs?1.25?L limit to avoid tax

Report STCG and debt gains correctly

Use CFP guidance to schedule redemption tax-effectively

Asset Allocation Summary
Asset Class - Corpus Allocation --- Portfolio Role
Equity Mutual Funds ≈ Rs?75?L Long?term growth
Stocks Rs?15?L High?growth but moderate risk
Debt Instruments Rs?31?L Capital safety, pension supplement
Real Estate / Rental Already held Cash flow, not in financial corpus

Equity remains majority but debt provides necessary stability.

Why Actively Managed Funds Matter
You asked to avoid index funds – this aligns well

Advantage of active funds:

skilled managers for volatility

better downside risk control

higher chances to beat benchmark

Always use regular plans via Certified Financial Planner

Regular plans bring consistent review and professional advice

Direct plans lack this monitoring and rebalancing guidance

Emergency Reserve Chances
Debt allocation can double as emergency reserve

But still also keep 6–12 months of expenses in liquid format

Will handle unexpected events without equity disruption

Estate Planning and Retirement Distribution
In later years, debt allocation may rise further

Consider systematic withdrawal plan during retirement

Reinvest residual gains annually to maintain balanced risk

Professional Oversight and Review
A Certified Financial Planner ensures correct allocation

Helps manage tax, rebalancing, and changing needs

Reviews investments, adjusts strategy, and protects family

Final Insights
You have built a robust financial foundation with steady pension and assets

Your rebalancing plan repositions portfolio for stability and income

Keeping debt at 25% ensures capital isn’t eroded in bear markets

Phased approach preserves growth via equity and avoids tax burdens

Review and rebalance semi-annually with CFP support

You can enjoy retirement confidently while preserving wealth

With structured action and active management, your investments remain aligned with your ongoing financial needs, income, and risk profile.

Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment