Mutual Funds: With markets on a decline, is this the time to rebalance your portfolio?

livemint.com:

stock market, recent weeks have seen Indian benchmark indices take a notable dip, sparking concerns among investors about the stability of their equity investments. With the Nifty 50 dropping 1.87% and the S&P BSE Sensex tumbling 1.64% in just a week, many mutual fund investors are left wondering whether it's time to reassess their investment strategies. While market downturns are a regular part of the investment journey, they often serve as a reminder to reevaluate portfolios and consider potential adjustments.

So, is now the right time to take a closer look at your mutual fund portfolio? Let's delve into it. One factor to consider before you decide to rebalance your portfolio is your risk tolerance. If you're nearing retirement or have a low tolerance for risk, you may want to reconsider investments that are heavily reliant on equities.

On the other hand, if you have a higher risk tolerance and a longer investment horizon, you may be more comfortable weathering market downturns. Market downturns can create opportunities for portfolio rebalancing. Rebalancing involves adjusting your asset allocation to maintain your desired level of risk.

For example, if your equity holdings have decreased in value, you may need to reallocate funds from other asset classes to maintain your desired asset allocation. During times of market decline, it's essential to review the performance of your mutual funds. While short-term fluctuations are to be expected, consistently poor performance may indicate underlying issues with the fund.