NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Portfolio Management Process
Which of the following best describes portfolio rebalancing?
Portfolio rebalancing means adjusting holdings to restore the intended asset allocation after market movements have changed the weights. Overweight assets are trimmed and underweight ones added, keeping the portfolio's risk level in line with the client's profile.
- AAdjusting holdings to bring asset weights back to the intended allocation after market movementsCorrect
- BSwitching the entire portfolio to cash when markets fall
- CChanging the client's benchmark every quarter
- DIncreasing the fees charged to the client
Explanation
Market movements cause asset weights to drift from targets. Rebalancing sells overweight assets and buys underweight ones to restore the intended allocation and risk level. It is not market timing or a fee change.
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