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NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Portfolio Management Process

A client's portfolio has a target allocation of 60% equity and 40% debt. After a market rally, the equity share has risen to 70%. Rebalancing back to the target by the portfolio manager is best described as:

Selling equity and buying debt to return to the 60:40 target is maintaining the strategic asset allocation. It restores the intended risk profile after drift caused by the equity rally, rather than expressing a market view or adding a new asset class.

  1. ATactical bet to increase equity exposure
  2. BStrategic asset allocation maintenance by selling equity and buying debtCorrect
  3. CMarket timing based on a forecast of falling bonds
  4. DDiversification by adding a new asset class

Explanation

Restoring the 60:40 policy weights means selling the excess equity and buying debt. This maintains the strategic allocation and the intended risk level. Increasing equity would move further from target, so the tactical-bet option is wrong.

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