A DMA based approach to MF buying decision

I have many people asking me as to how they can use DMA for deciding as to when they should be buying MF. Let me try to answer this in the current post. To begin with there are many sites which will give you the DMA for different number of days. Moneycontrol is one such site, there are several others.

Let me get straight into the present situation with Large cap based MF first. Observe the following with the DMA levels of Nifty, which is an appropriate index for large cap funds:-

  • Current Nifty value is at 8192 as of yesterday.
  • 30 DMA is 8109, 50 DMA is 8236, 150 DMA is 8434 and 200 DMA is 8264.
  • The significant difference between 150 DMA and 30 DMA indicates that the last 120 days have been bad for the Nifty.
  • This is also reflected in the 30 DMA and 50 DMA figures.
  • Now, if the Nifty goes up from here all of these will rise and the opposite effect will be there if it falls.
  • Ideally, if the index level is below 200 DMA you are in the buy zone. However, if you plot these over the past few days you will see that they were quite a bit lower even one week back when Nifty was around 7900.
  • Given this and the general expectation that Nifty may well have cuts soon, I suggest you wait to see how the 30 DMA is reducing over the next few days or weeks. Once the 30 DMA turns buy at that level.
  • My estimate is Nifty will find strong support at 7800 levels or higher.

For the mid cap funds you can take Nifty Mid 100 index. See the following :-

  • Current Nifty Mid 100 value is at 14609 as of yesterday.
  • 30 DMA is 14472, 50 DMA is 14775, 150 DMA is 14704 and 200 DMA is 14253.
  • The significant difference between 30 DMA and 50 DMA indicates that the last 20 days have been bad for the index.
  • This is also reflected in the 30 DMA and 50 DMA figures.
  • Now, if the index goes up from here all of these will rise and the opposite effect will be there if it falls.
  • Ideally, if the index level is below 200 DMA you are in the buy zone. You will see here that we are quite a way from there.
  • Given this and the general expectation that index may well have cuts soon, I suggest you wait to see how the 30 DMA is reducing over the next few days or weeks. At a point when index level goes below 30 DMA you can start buying.
  • If it goes below 200 DMA, it is of course a strong buy zone.
  • My estimate is Nifty Mid 100 will find strong support at 14000 levels or higher.

For Small cap funds you can use Nifty SML 100 index. Note the following:-

  • Current Nifty SML 100 value is at 5964 as of yesterday.
  • 30 DMA is 5743, 50 DMA is 5894, 150 DMA is 5942 and 200 DMA is 5722.
  • The figures show that the index fluctuations have not been significant in the above time frames.
  • However highest point and lowest point of index was 6544 and 4205 respectively.
  • Now, if the index goes up from here all of these will rise and the opposite effect will be there if it falls.
  • Ideally, if the index level is below 200 DMA you are in the buy zone. You will see here that we are not too far from there.
  • Given this and the general expectation that index may well have cuts soon, I suggest you wait to see how the 30 DMA is reducing over the next few days or weeks. At a point when index level goes below 30 DMA you can start buying.
  • If it goes keeps declining further from there, it is of course a strong buy zone.
  • My estimate is Nifty SML 100 will find strong support at 5600 levels or higher.

So in essence this is really not a time to buy MF, unless you are doing it through the SIP route. This month is likely to see serious changes in the run up to the budget. There will definitely be opportunities to buy, keep your eyes on the DMA figures and do not take decisions just based on a single day fall.

 

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3 thoughts on “A DMA based approach to MF buying decision

  1. Sir this is really helpful to buy MF. I was and am doing SIP in MF however based on your articles now stopped new SIP and decided to follow your approach of buying MF. Always waiting for your post which is great learning and enriching experience for me.
    Have a Great Day !
    Thanks,
    Vivek

    Like

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