My investment plan for Mutual Funds

As I have written in several posts now in the blog, my current SIP in the mutual fund schemes that I had for the past 2 years has completed in October. Over the last 7 years and a bit, I have regularly invested in SIP mode and had rarely paused to analyse whether that was a good thing or not. However, once I started to look a little deeper into the issue, it was very clear to me that SIP was a particularly poor way to invest in MF schemes, more so with the markets that we have had over the last two years. Anyway let me not repeat myself here, this post is about how I am going to invest now. New readers can look up these posts if they are interested as to why I have come to this conclusion.

In my present situation, where I have an active income from my consultancy practice that is irregular, my sources of fund for investment can be somewhat erratic. On an average I would like to invest about 3 lacs a year in equity MF. This will be in 5 schemes as per the portfolio structure that I recommend. Though I am unhappy about how I have invested earlier, I am quite satisfied with my choice of funds. These funds are as given below:-

  1. ICICI Focused Blue chip Fund
  2. ICICI Value Discovery Fund
  3. HDFC Mid Cap Opportunities Fund
  4. DSP BR Micro Cap Fund
  5. ICICI Focused Blue Chip US Fund

Now, the way I want to invest in these could be a little different from how most investors would like to normally invest. The simple point is for equity investment when you are investing from a time perspective is really immaterial, what matters is at what level of the market or the stock you are investing in. The other aspect is how much amount you can invest at one go. Now, fortunately I will be able to invest even the entire amount if needed at any point in time. This is because some of my debt instruments keep maturing through the year and my Consultancy income, though not regular, is reasonably good in terms of cash flow when it happens. I do not think we will reach a situation in the next few months where there will be a need to invest 3 lacs at one go, but the ability to do this if required enables a rather flexible approach. This however, while a little out of the way, can be achieved easily with some planning by most people.

OK, so without much further ado this is what I plan to do:-

  • Align each fund to a relevant index for making the purchase decisions. For example Nifty will be the relevant index for ICICI Focused Blue Chip fund.
  • As of now Nifty current levels are significantly below the 200 DMA for Nifty. As Nifty goes down further the 200 DMA will also get dampened.
  • I plan to wait for the Bihar results and the US Fed rate hike in December. 
  • Assuming the 200 DMA of Nifty keeps falling I will start buying once every month for an amount of at least 10000 Rs at one go. I plan to buy a maximum of 6 times in a year.
  • Once Nifty 200 DMA starts to rise, I will stop buying and wait for the next down cycle.
  • My number of buys will typically be 4-6 in a year, that is every quarter or every 2 months.
  • A refinement can be to take the 200 DMA of the fund NAV and decide on purchase based on that.

I hope this method is clear to everyone. The basic idea is to buy at the low points of the index or fund NAV. Note that as long as you have a method, you need not worry about timing the market. The results here are bound to be better than the standard SIP where you are investing the same amount on the same day every month without any consideration for the market level. That is simply a totally wrong way to buy equity in any form.

In the environment we have in our country today, an unidirectional market either up or down will really not be there. As a result you will definitely get pockets of buying opportunity. It is important to use these opportunities and understand how it benefits your overall portfolio by doing so. The mindset of investing monthly and every month is pointless – what is important is the discipline of having the investment money available so that you can use it quickly when things change.

In the next post, I will take a practical example of asset allocation and demonstrate how one can very easily create a framework of investment with the logic of this post.

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17 thoughts on “My investment plan for Mutual Funds

  1. If you have a view of the market and are confident of the entry point, why not opt for index futures for 12.5 times exposure for less than 1% per annum rolling charges. Your fund managers would definitely be charging much more than this affecting the NAV adversely:

    Nifty @ Units Value Margin @ 8% Entry Chrg Exit Chrg One Yr Chrg Chrg/Value
    8000 75 600000 48000 210 210 5040 0.84% .035%x2x12)

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  2. Table repeated :
    Nifty @ 8000
    Units (multiples of 75) 75
    Capital Value 600000
    Margin (Investment) @ 8% 48000
    Capital Value/Margin 12.5 times
    Entry Charges @ 0.035% 210
    Exit charges 210
    Annual Charges(210x2x12) 5040
    Charges/Capital Value 0.84% per annum

    You need to roll over on last Thursday of every month to maintain your position as long as you like. A movement of 67-68 points on the nifty from your entry level, per annum, will keep you at break-even.

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  3. Does it mean , you would be investing each month only and only if current index level is less than 200 dma level?

    Also what would be the benchmark for international fund

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  4. Hi sir,
    I’m reading your blogs from beginning..now I’m also conclude this is way is very good. I have 4 mutual funds SIP’s but even I’m doing lumsump when market down.finally I’m observing my SIP purchased was bit higher NAV than additional purchase .so its applicable for my all MF..
    Thanks for information.

    Vishwanath

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  5. Thanks for this article,, Its very interesting to look at new perspective of buying MF, rather conventional SIP manner.

    All my goals are 16 – 21 years old, so how do i manage to find this DMA vs Index levels monthly.

    Should i consider the underlying Index of my Mutual funds with 200 DMA to decide on purchase of units.

    Because i have more Multicap funds in portfolios, So need to know how ,which Index is best to compare.

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  6. Icici Prudential Balanced Advantage Fund sip works as a value sip . No need to invest our tym and energy in timing the market. BAF rebalances debt and equity on daily basis as per price to book model.

    If you want to do flex/value sips…invest in ICICI Prudential Balanced Advantage Fund sip

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  7. Rajshekhar ji, i don’t know for which fund , i shud take which benchmark( how to align fund with which index), is there any guideline available for this in ur earlier post or how can we do that, plz guide.

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