Even though I have explained my perspective on buying MF in several of my blog posts, I keep getting requests from readers to share how I plan to buy MF. As we are starting a new year soon let me state my plans to buy MF in 2017.
First things first – is it a good idea to invest in MF this year? I would say yes to that. Most investors are not equipped properly to invest only in stocks and even the ones who have that knowledge, should invest in MF for greater coverage of the market. My 3 portfolio strategy of Debt, MF and stocks remain the same in 2017. Avoid stocks if you are not comfortable with it right now, though you must have a stock portfolio eventually. As far as MF goes you must invest in it consistently and increase your investments with time.
Now will it be a good idea to invest in MF even though the indices may not see any great upswing this year? Again the answer will be a yes, if you are investing for the long term then current levels do not matter much. Of course, your buying levels matter and as such doing SIP blindly will really be a bad idea. There will be serious fluctuations in the indices this year and you need to take advantage of this. I think we will see levels of sub 8000 on the NIFTY with a possibility of going down all the way to 7000. At the same time there will be a possibility of crossing 9000 levels and potentially reaching 9500.
Based on this, my plans to buy MF in 2017 is as follows:-
- I will have an overall investment allocation to MF of 4.8 lacs, in the 4 funds that I invest in. You can read about this in my other posts.
- My assumption is there will be at least 4-5 opportunities this year where Nifty will go below 8000. I do not plan to try and catch the bottom which is an impossibility.
- I estimate the first opportunity to come around budget time and the next one to come after results of the assembly elections.
- At these 2 times, I want to invest about 3 lacs. This money will be available from my active income and also from my FMP redemption as needed.
- Of course, these are estimates based on two assumptions. First, the budget will come at a time when the Q3 results are out and have suffered due to the demonetization issue. Second, BJP will lose in the UP elections as their traditional support base has been rather badly affected by the same token.
- Regardless of whether this happens or not, there will be 4-5 opportunities that you need to wait for.
- Last year such a strategy allowed me to buy DSP BR Micro cap fund at an average NAV of 38 Rs, which was great.
What happens in the unlikely case that the market just starts going up and Nifty scales 10000 and more in 2017? Well, firstly in a rising market it makes no sense to invest through SIP. Secondly, the markets will definitely have a serious correction at times. I will just wait for it and invest most of my money when that happens.
When the market is falling how do you know at what point to buy? Look at the DMA figures for the appropriate index. For example, if the 200 DMA is falling and so is the 50 DMA then you can wait for some time. The moment there is a turnaround in this and the trend reversal sustains for 2-3 days go ahead and buy your MF units. Yes, there is no guarantee that the indices will not fall further but always remember that you are not trying to catch the bottom of the market, only attempting to buy at a sensible price.
What are the chances of this strategy not working out ? Fortunately, none !!!