Your MF investments – strategic options

Several people have asked me over the last few months as to how I am so confident about the Nifty levels suffering major cuts. To be honest, it was really not that difficult to predict as almost all contributing factors were in the negative. My expectations that the Nifty will find support in between 7200 and 7500 have not held though and it now seems that 6800 or even lower levels are possible shortly.

As I said in the last post, your portfolio has been damaged quite a bit by the current cuts and recovery will be a long and painful process. If you are investing for specific financial goals linked to your MF portfolio, you need to assess the impact and estimate what should be your SIP amount now so that the goal can be reached on time with a fairly modest XIRR of not more than 12 %. In fact even this may be a difficult thing in the next few years.

Even before you go into the specific strategies for your MF portfolio, you need to look at the other 2 portfolios of stocks and debt. For those who do not have a stock portfolio, this will be a great time to start with one. You can read up some posts elsewhere in the blog as to how you can get started. Over a period of time this will be a great contributor to your wealth. As far as debt portfolio goes, people who do not have a reasonable amount of it will have realized the great value that it provides as a hedge as well as in ensuring that you do not have to sell your equity investments in the wrong time. Actively look at investments like the Tax free bonds. The so called experts who were sneering at these earlier may well be queuing up to but these now.

Coming down to the specific strategies in terms of your current MF portfolio and ongoing investments, here is what I think you should be doing:-

  • Your MF units are already down on NAV and if the market recovers they will increase in value. However, buying new units at progressively higher prices will only mean that your average acquisition price increases, which cannot be a good idea.
  • Given the current market levels, it is reasonable to assume that the markets will recover in the second half of 2016. As such buying through SIP does not make sense.
  • You can look at buying most of your MF investments between now and April/May.
  • In case you have some surplus money from bonus, arrears or variable pay it will make sense to invest more in MF at this juncture. That will average out your purchase price and make your recovery relatively faster.
  • It is in bad times that you get to see the true performance of a fund. If your fund is a laggard, be ruthless about it and shift to another one. The only thing that matters is how well it has weathered the downturn, do not be swayed by who is the fund manager or how many experts are asking you to stick to the fund.
  • Use this opportunity to get out of the SIP mode and start making logical choice on MF purchases some 4-6 times a year. It is far more effective than SIP.

As long as you are able to do the above in a sustained manner, the crisis can yet be turned into a possible opportunity in creating better investment options for yourself.

 

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6 thoughts on “Your MF investments – strategic options

  1. Dear Sir,

    Thanks for this.

    I had a doubt, say I break my monthly automatic SIP now, and I can see the NAV on most of my funds are bottom level, so I am going to buy a lumpsum worth of my next 5months investment, i.e., if I am doing SIP of 10K for a fund I am going to make the purchase of 50K on the same fund.

    After 5 months how do you actually capture the low NAV, what is the NAV doesn’t go below? If the NAV doesn’t go below having my monthly automatic SIP would have bought me more units. I know some people does manual SIP, and I am trying to understand how they actually buy it in almost right if not exactly right time?

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  2. Dear Sir,
    Call it providence or grace, that i happend to stumble upon your blog. I have spent an entire day reading every article and I am loving it. I am 33 year old professional and i have been investing for the past 2 years. I have a couple of questions which i hope you will take the time out to answer. It would be a big help.

    Lets assume i have been investing using 30 dma 200 dma indicators. Time passses and i keep on buying as per plan. But now that the markets have shot up ( maybe index p/e is around 24, thus excessively overvalued and index is well above 200 dma, a major correction or crash is a possibility. Maybe is pre 2008 crash period.

    1. In a overvalued market. What would your stratergy for selling be? Would you sell your entire holding or % of your holdings andstart reinvesting at lower levels? Is there a stratergy for exits that you follow? (No use staying at higher levels as equities dont compound)

    Please please do help

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    • Sorry, I missed out responding to this. For MF do not sell ID you are building a long term portfolio, let the fund manager take care of it. If you are having shorter term MF and stocks then use 200DMA for sales too. In short when the 200 DMA rises for some time and just starts to show a trend reversal, sell at that time.

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  3. Thanks so much sir for the prompt reply. For some reason i didnt get a notification that you had responded. Just saw your message today. I plan to build a very long term portfolio so your advice is perfect. 🙂
    Sir, i have been reading your blog rather religiously and maybe, its too much to ask, but if you could do a post explaining this strategy for buying with the help of a chart (any time period) showing how you select the upper and lower level (support and resistance) and at what point(s) you would consider buying using DMA’s.
    I feel a pictoral represntation would help immensely.

    Again a big thank you for your knowledge and help.

    Regards

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  4. Dear Sir, thanks for your prompt reply. Your advice is perfect. Thanks
    Also i hope its not too much to ask but if you could please explain the buying strategy using a chart, clearly defining how you select levels (support and resistance) to invest and at what points you might actually purchase units using dma’s. A pictoral representation would help immensly.

    Do consider
    Thanks again for your knowledge and help

    Regards

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