His shares were doing pretty well until a point when profit booking in overall markets chipped in and the entire surplus was eroded. Rajan being a long term investor thought to maintain the same portfolio for better returns as he had faith in the companies invested into, but now has come a point where he is actually losing money in the investment made in equities.

Had he rebalanced his devoted sum at right point, he would have been sitting in profits. There are some simple but basic investment rules that can save you from market choppiness.
First and foremost is that, don't just think that a rejigging can be done only by high net worth individuals or institutional investors. Rebalancing is a smart approach that can be followed by any individual. Some of the simple rebalancing techniques an individual has in his armory are as follows:

Physical Re-Balancing

This rebalancing is done once a year as a principled approach but can be made before the period in order to make full use of market opportunities. It tells the investor to swing in the direction of the markets. Take an example: Mr Sunder has invested a sum of Rs. 1 lakh in two parts. A sum of Rs 50,000 he has invested in Equities while the remaining he has invested in corporate bonds.

One way Mr. Sunder can rebalance is to keep this allocation intact for a year's time and check the results at the end of the year. In case, the markets remain bearish and his portfolio looks like Rs 40,000 in Equities and Rs 60,000 in debt, the approach should be to sell the component of bonds and book profits in it and buy equity at discounted prices.
Similarly, if the value of equity invested grew to Rs 57,000 while bonds value declined to Rs 43,000, then the approach would be to book profits in Equities and invest the same in Bonds. This kind of rebalancing is also known as automatic rebalancing.

Note: The proportion is taken to make readers understand the basic concept. It can vary according to markets circumstances.

About the Author:
Amit Sethi is an MBA (Fin) graduate and a Financial Consultant. He has spent over 10 years in Equity research, Stock broking and Financial Consultancy Sector. He can be reached at expert@investmentyogi.com

Courtesy:www.investmentyogi.com