Portfolio
Rebalancing means the value of Portfolio as well as its composition. The
relative proportion of bond and stocks as may change as stock and fluctuate in
repose to such changes, whenever portfolio rebalancing is necessary.
Policies of
Portfolio Rebalancing
Buy and Hold
Policy
Buy and Hold Policy
is also called ‘do nothing Policy’. Investor set a limit (floor) below which he
doesn’t wish the value of portfolio should go. Therefore, he invests an amount
equal to floor value in non-fluctuating assets (Bonds).
Constant Mix
Policy
Constant Mix Policy
is also known as ‘do something Policy’. Under this policy, investor maintains
and exposure to stock at a constant percentage of total portfolio. This
strategy involves periodic rebalancing to required (desired) proportion by
purchasing and selling stocks as and when their prices goes down and up
respectively. In other words this plan specifies that value of aggressive
portfolio to the value of conservative portfolio will be held constant at pre -
determined Ratio.
Constant Proportion
Portfolio Insurance Policy (CPPI)
Under this strategy
investor sets a floor below which he does not wish to fall called floor, which
is invested in some non – fluctuating assets such as Treasury Bills, Bond etc.
The Value of Portfolio under this strategy shall not fall below this specified
floor under normal market conditions.
Target
Investment in Share = Multiplier
(Portfolio Value - Floor Value)
Multiplier is a
fixed constant whose value shall be more than 1.
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