NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Portfolio Management Process
A portfolio manager sets a strategic asset allocation of 60% equity and 40% debt. After a strong equity rally the portfolio moves to 70% equity and 30% debt. Restoring the original 60:40 mix is best described as:
This is rebalancing. When market movements push asset weights away from the strategic targets, the manager sells the overweight asset and buys the underweight one to restore the original 60:40 mix. It keeps portfolio risk aligned with the client's policy rather than being a deliberate view on markets.
- ARebalancingCorrect
- BMarket timing
- CTactical overweighting
- DBenchmark switching
Explanation
Returning the portfolio to its target weights after drift caused by differing asset returns is rebalancing. It involves selling some equity and buying debt. Tactical overweighting would deliberately move away from the strategic weights, which is the opposite.
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