NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Portfolio Management Process
A PMS portfolio is set at 60% equity and 40% debt. After equity rallies, it stands at 70% equity and 30% debt, and the manager sells equity and buys debt to return to 60:40. This action is called:
This is rebalancing. When market movements push weights away from the target, the manager sells the overweight asset and buys the underweight one to restore the 60:40 mix. This keeps risk aligned with the client's profile instead of letting it drift upward.
- ARebalancingCorrect
- BDiversification of issuers
- CAveraging down
- DBenchmark switching
Explanation
Rebalancing restores the portfolio to its target asset weights after market movements cause drift. Selling the overweight equity and buying the underweight debt brings the mix back to 60:40. It controls risk drift rather than adding new issuers or changing the benchmark.
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