when the principal invested in a fixed income security with a set maturity is repaid the investor must decide whether to reinvest it when the proceeds from matured bonds are not reinvested a portfolio can be said to be in runoff 
balance sheet runofffor a bank or lender portfolio runoff can occur if it can t make new loans quickly enough to replace the repaid ones it made previously runoff can also occur when early prepayments are allowed or as defaults occur banks can experience runoff when individuals and businesses withdraw capital to invest in other higher paying investments thereby reducing the bank s total capital in an effort to reduce portfolio runoff some loans specify prepayment penalties these provide additional compensation for the lender if the borrower pays off a loan before the end of its term runoff in investment portfoliosfixed income investments like asset backed securities abs and mortgage backed securities mbs usually have a fixed maturity date for mbs it would be based on the term of mortgages bundled to make up the security if cash flow from mortgage backed securities is not reinvested the income the portfolio generates will decline federal reserve actionsthe federal reserve bought treasury debt and mortgage backed securities in quantitative easing qe programs adopted following the 2008 financial crisis to start reducing its balance sheet the fed doesn t need to sell those securities it can merely choose not to reinvest some or all of the proceeds as the debt matures and is repaid insurance portfolio runoffjust as a fixed income investor may choose not to reinvest coupon payments or principal repayments a reinsurer may choose not to write new policies while waiting for those it previously wrote to expire its portfolio would then be in runoff 