Let me start by saying that this post is meant for readers who are looking at possible alternate ways of buying their MF units. If you are a reader who thinks that you are comfortable with the mechanism of standard SIP then you should stick to it. As most of you know, I have stopped my SIP mode of MF investments from this month and have formulated a fairly simple method of buying MF units over the next one year. While readers are welcome to follow my method, some people think that the method outlined by me might be too complex for them to follow. This post has a simpler suggestion.
Now that the BJP has lost the Bihar elections badly, it is going to have a fairly negative impact on the markets. In fact, over the next 2 months the markets are most likely to remain choppy with a negative bias. The winter session of parliament is unlikely to be much better than the monsoon session, the rate cuts are all done with and the corporate earning figures have not seen any real improvement. In this scenario, the only real positive trigger can be the results of Q3 which will really take till middle of January to manifest itself. Given this situation, I really think a Nifty range of 7500 to 8300 is probably the best that we can hope for in the next 2 months. Many people are feeling that it is quite possible for the Nifty to go down to 7300 or so but my own belief is that Nifty will find very strong support at 7500 levels.
With the above backdrop, let me take an example of a large cap fund purchase such as ICICI Prudential Blue Chip or Franklin Blue Chip. We will assume an investment of 5000 a month for the next one year. The plan that I will have with some of the rationale is as follows:-
- Look at an investment amount of 60000 in the year and do not look at it as 5000 per month. Like you should not be selling equity at the wrong time, so should you not be buying equity at the wrong time.
- Identify some levels of the Nifty at which you would ideally like to buy your MF units for the Large cap fund. I think for the next 12 months these levels should ideally be 7800, 7600, 7450 and 7300.
- To begin with simply wait till the Nifty value drops to 7800. Now, this may happen as early as next week or may not happen in November. However, do not worry about when it happens, it is just a matter of time.
- If 7800 is reached on a day which is in a seriously declining trend then wait for the end of the week to confirm the trend. For example if Nifty levels are 8000-7960-7870-7800 over 5-6 days then wait for the end of that week to see if the decline takes it further down.
- You need to be faithful to the levels, once you have confirmed the level put some money immediately. So if Nifty reaches 7800 you can invest 10000. For the other 3 levels you can put 10000, 20000 and 20000.
- It is possible that all levels may not be reached in the year. In that case you can simply invest at the next higher level whatever it is. For example suppose Nifty goes down to 7400 and then starts to rise. You can then put in your money at 7400 plus levels.
- Of course, if market skids further below 7300 you can put in more money even from your next year’s investment amount. Buying the units in August 2016 when Nifty is 7000 is better than buying it in January 2017 when Nifty is at a level of 8000. Remember always that for equity investments, the level at which you buy it matters not the time.
- Repeat the above exercise for all funds in your portfolio by tracking the relevant index for those funds.
- Your question may be on whether you will find enough money to invest in lump sum. You need to create a fund for that and it is not difficult for most of us. In the worst case, use your emergency fund as a short term measure.
The impact of this strategy can be that you have bought 60000 worth of units by March or so, all at Nifty levels between 7300 and 7800. At the point when Nifty resumes it’s upward journey you can simply sit back and see your units get the benefit of this rise. The only situation where this will not work is if Nifty keeps rising for the next few months. Believe me when I say, that is not going to happen to our markets any time soon.