If we rebalance for every six months, then what result we can expect? Illustration : First investment in Mar-2015, we invest Rs.60,000 and in next round we sold those stocks which invested previous round and reinvest including fresh Rs.60,000 in new entrants equally by dividing total corpus from total number of companies. Again in third round we sold all our stocks we hold and reinvest including fresh Rs. 60,000 in new entrants. This system will apply every six months. If there is no new entry of stock, then there is no sale and no new purchase. Then what will be the return?
We analyzed the six-month rebalancing scenario you described, and interestingly, it turned out to be an unfavorable outcome for the investor. The total investment of ₹12 lakh (₹1.2 lakh per year for 10 years) ultimately became ₹11.6 lakh, resulting in a net loss.
A key reason for this underperformance was that, at times, the accumulated gains became concentrated in a single stock. When that stock delivered negative returns in the next cycle, it erased much of the gains earned previously.
The simulation covered the period from January 2015 to December 2024, and the outcome could differ if the same method is applied over a different time frame.
The same logic applies to US index funds like VOO where chasing individual S&P 500 entrants would likely underperform the broad index. Your data shows that 12 of 29 stocks exited Nifty 50 and 7 gave negative returns, which mirrors what happens with S&P constituents too. The simplicity of SIP into a low cost index fund consistently beats active stock selection because you avoid the pitfall of recency bias. This is why institutional investors increasingly reccommend passive index strategies over trying to pick winners.
If we rebalance for every six months, then what result we can expect? Illustration : First investment in Mar-2015, we invest Rs.60,000 and in next round we sold those stocks which invested previous round and reinvest including fresh Rs.60,000 in new entrants equally by dividing total corpus from total number of companies. Again in third round we sold all our stocks we hold and reinvest including fresh Rs. 60,000 in new entrants. This system will apply every six months. If there is no new entry of stock, then there is no sale and no new purchase. Then what will be the return?
Hello Venkatraja Bhat!
We analyzed the six-month rebalancing scenario you described, and interestingly, it turned out to be an unfavorable outcome for the investor. The total investment of ₹12 lakh (₹1.2 lakh per year for 10 years) ultimately became ₹11.6 lakh, resulting in a net loss.
A key reason for this underperformance was that, at times, the accumulated gains became concentrated in a single stock. When that stock delivered negative returns in the next cycle, it erased much of the gains earned previously.
The simulation covered the period from January 2015 to December 2024, and the outcome could differ if the same method is applied over a different time frame.
The same logic applies to US index funds like VOO where chasing individual S&P 500 entrants would likely underperform the broad index. Your data shows that 12 of 29 stocks exited Nifty 50 and 7 gave negative returns, which mirrors what happens with S&P constituents too. The simplicity of SIP into a low cost index fund consistently beats active stock selection because you avoid the pitfall of recency bias. This is why institutional investors increasingly reccommend passive index strategies over trying to pick winners.