Portfolio rebalancing means making changes in your existing funds/asset allocation so that it matches the recommended funds/asset allocation as per your goal plan.
It involves redeeming money that is invested in old funds and re-investing them in the current fund recommendations as per your goal plan (we take into account the type of goal, risk level, and the duration of the goal that you have selected).
In some cases, it may also involve redeeming some amount from equity funds and re-investing it in debt funds (or vice-versa) when your current asset allocation does not match the recommended asset allocation as per your goal plan.
This could be because either your current asset allocation is not according to your chosen risk level or in the case of life goals, because you have now moved closer to your goal hence need to lower risk by increasing debt and decreasing equity. For each goal that needs rebalancing, you will be shown exactly what the changes are going to be before you decide.
We do this in a very cost and tax-efficient manner by only recommending you to rebalance that part of your portfolio (at a given time) which is free of exit load charges and short-term taxes.
2. External investments can be rebalanced only if they are mapped (moved) to goals.
If you want to read in more detail about how it is done, click here.
To understand why it's important to rebalance your portfolio, refer to this FAQ.
You can refer to this FAQ to understand the process (and steps) of Portfolio Rebalancing.
We also have YouTube videos available for all the common FAQs on SIP and Portfolio Rebalancing. This will hopefully make it simple to understand the entire process and help clarify any doubts that you may have.