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

A portfolio has 60% in equity and 40% in debt as per its strategic asset allocation. After equity rallies, the weights become 72% and 28%. The manager sells equity and buys debt to restore 60:40. This action is best described as:

This is portfolio rebalancing. The manager restores the original strategic weights of 60:40 after market movements caused the equity share to drift to 72%. It is not tactical allocation, because the aim is returning to the target rather than taking a deliberate view-based deviation.

  1. ATactical asset allocation
  2. BPortfolio rebalancingCorrect
  3. CSecurity selection
  4. DMarket timing by benchmark switch

Explanation

Restoring the portfolio to its original target weights after drift caused by market movements is rebalancing. Tactical allocation would deliberately deviate from the targets based on views, which is not the case here.

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