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

A portfolio is allocated 60% to equity and 40% to debt as per the client's strategic asset allocation. After a strong equity rally, the portfolio is 70% equity and 30% debt. Restoring the original 60:40 mix is known as:

Restoring the portfolio to its 60:40 target mix after market movements caused drift is called portfolio rebalancing. It means selling the over-weighted asset class and buying the under-weighted one, keeping risk aligned with the client's strategic allocation rather than letting rallies change it.

  1. APortfolio rebalancingCorrect
  2. BMarket timing
  3. CPortfolio churning
  4. DTactical overweighting

Explanation

Bringing weights back to the target strategic allocation after drift caused by market movements is rebalancing. It involves selling some equity and buying debt. Tactical overweighting would deliberately keep a higher equity weight, and churning means excessive trading for commission.

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