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

A portfolio is set with a target allocation of 60% equity and 40% debt. After a strong equity rally, equity forms 70% of the portfolio. Restoring the 60:40 mix is an example of:

This is strategic rebalancing. The portfolio has drifted from its 60:40 target because equity rose, so the manager trims equity and adds debt to return to the policy weights and the intended risk level, rather than acting on a market view.

  1. AStrategic rebalancing back to the target allocationCorrect
  2. BMarket timing based on a forecast
  3. CPassive indexing
  4. DTactical overweighting of equity

Explanation

Selling equity and buying debt to return to the policy weights is rebalancing to the strategic allocation. Tactical overweighting would keep or raise equity on a view, and market timing relies on forecasts. Here the action is driven by drift from target.

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