Over the past few months I have written several posts on why I do not think investing in the SIP mode in MF is the right way to go about things. Yes, I myself have done it for a long time of 7 years but once you realize that it is a wrong method you need to change. Readers who are interested in understanding my thought process could go and read these posts. The current one is more about the mechanism that I am currently following in order to buy MF.
In this post let me talk of buying large cap oriented MF, which is one category of funds that most investors want to invest in. My last SIP in this category was in ICICI Focused Bluechip – Direct plan and I want to continue in the same fund. Now, had I continued in the SIP mode, my investment of 5000 would have been on tne 7th of each month. In the present context I have not bought anything since October. My plan is to invest about 70000 in this fund between now and 2016 end.
If you look at some of the NIFTY data points closely, you will observe the following. This data is available on several websites.
- Current NIFTY level is 7942, YTD returns are -4.1%
- 1 year, 6 months, 1 month returns are all negative.
- 30 DMA value is 8012, 50 DMA value is 7996
- 150 DMA value is 8181, 200 DMA value is 8307
Obviously if the large cap fund is follows Nifty reasonably closely then all your SIP that you have done this year will give negative returns. You can go ahead and check for yourself if this is happening. I think this establishes quite conclusively that doing SIP in this year was clearly not a good idea as far as large cap funds are concerned.
So what is the mechanism that I want to use for buying this particular fund. The broad idea I am using can be summarized in these steps:-
- Never buy if current Nifty level exceeds 200 DMA value or 150 DMA value.
- Current Nifty levels between 30 DMA and 50 DMA are a possible buy range.
- Right now we are lower than 30 DMA, so we can possibly buy.
- However, the trend to study is the 30 DMA and 50 DMA – if these are declining from these levels then I will wait to see a reversal of trend.
- Keep a watch for any big news possibility – in the next few days US Fed decision on hiking rates and our own GST bill progress will be the two major ones.
Based on all of these, I feel that a level of around 7800 or so on the Nifty is quite possible. If that happens and the above mechanism is validated I will probably put about 20 % of my intended investment or 14000. Note that I will only buy 4-6 times in a year and never buy when the levels are not right. Equity is simply not bought that way, people who say that you should be buying on a regular frequency are completely wrong.
I suggest you take a serious look at how your large cap MF purchases through SIP have fared in the past one year and take your own decisions. This method will do much better – there is no doubt on that at all.