How to buy large cap MF now

Many readers have written to me saying that they now understand why SIP is really not the right way to invest in equity.I feel quite happy to hear this because it demonstrates in some small way that my blog has been successful to a degree. However the next question is how then to invest in MF schemes. Let me address it in this post.

For purposes of simplicity we will assume that the MF in question is a large cap fund. It does not really matter which one, you can very well go with any of the top 5 or any of the long standing funds. For those readers who always insist on names, look at ICICI Focused Blue chip, Franklin Blue chip or some similar fund. The other assumption we will make is that the NAV of the fund is aligned to the Nifty index. 

Based on this let us look at how things currently are for the Nifty:-

  • 1 year and YTD returns on the Nifty are in the negative. So your SIP investments in the large cap MF of your choice is giving negative returns to you.
  • The above means if you buy it today, as opposed to an investment in June 2015 or January 2016 you will be better off.
  • Current Nifty level is higher than 30. 50. 150 and 200 DMA. This being the case it is a bad idea to buy units of your large cap MF now.
  • Your first buying point can be when Nifty levels go lower than 50 DMA which is about 8000 for the Nifty. In simple terms it means that any SIP in large cap funds do not make sense unless the above happens.
  • 200 DMA for Nifty is about 7778 and if the Nifty levels approach this figure it will be a great time to buy your large cap MF.
  • How do I know that Nifty will go down by 300 points or 600 points? Well, neither I nor anyone else can say this definitively. However, the current uncertain global economic situation, food inflation not coming down, corporate earning still not getting robust growth etc almost guarantees that Nifty will not go up in a linear direction. It may either be range bound with a range of 7800 – 8300 or there can be a deeper correction post Q1 results with it going down to 7500 or so.

In the above situation, readers can follow the large cap MF buying method that I have planned to use for the rest of 2016:-

  1. Stop all SIP in large cap MF, SIP works in very few market situation and this is not one of those situations.
  2. Wait till July end to see the impact of Q1 results on Nifty. Put 25-40% of your 6 month investment if Nifty goes to 7800 or below.
  3. Keep tracking Nifty for any news based correction and check if it is moving towards 7500.
  4. In any case if Nifty is below 200 DMA start putting more investment in large cap MF.
  5. You need to make a maximum of 4 purchases in these 6 months. Tracking nifty is quite easy, just check in MoneyControl for the DMA figures.

I hope this has given you a good idea as to how you can get this done. I will be happy to answer any queries or clarifications that you may need.

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9 thoughts on “How to buy large cap MF now

  1. Sir – I assume this strategy is only for Large caps. How about others? Should we consider the same way or keep investing

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  2. Dear sir, could you do similar analysis for other categories of funds also? If do could you share with us, thanks for the post

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  3. It is clear for the large cap MF ‘s. What about the mid and small caps? Can the corresponding Nifty indices be followed in the same manner?

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  4. Dear Sir,

    I agree and understand that levels are important while buying Equity. But I humbly disagree with your statement “…your SIP investments in the large cap MF of your choice is giving negative returns to you”. I started investing via SIPs in BSL Top 100 from March 2015(markets were at peak). I split my SIP amount over 3 days of a month(say 7, 15, 28). The current XIRR is a decent 12.13%. Without doubt I could have had better returns had I purchased via lumpsum during Jan-Mar 2016…. I didn’t as I wasn’t sure about bottom of market. Going forward, I will try the technique of using DMA to my advantage. But, maybe the best way is to have some amount(40%) as SIPs and accumulate the remaining(60%) for lumpsum based on DMA?

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    • See SIP is totally dependent on the days that you are doing it. It is like a lottery, you may strile gold but the probability is low. Therefore, it is a much better idea to but MF through active focus on the levels. It is a much better way of buying it over long periods.

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