MF portfolio realignment – my plan

If you are a regular reader of my blog you will know my 3 portfolio strategy for investment by now. I have portfolios in Debt, Stocks and MF. In the initial part of my working life I invested in mostly debt, the mid part was largely used to build up the stock portfolio and 2008 onward till now it has been largely MF. Of course, once I decided about giving up my regular corporate career in 2012, I boosted my debt portfolio significantly.

Over the years I have bought several MF schemes, initially with one time investments, thereafter with SIP and now back to investing at the right times. I have therefore collected a large number of MF schemes and in several of these the amounts invested are not very significant. The ones where I have done SIP obviously have some decent amounts, but even here there are several funds as my portfolio had changed over my 7 years of SIP.

In the past whenever the markets have gone up significantly, I have thought about cleaning up my MF portfolio. Somehow or the other it has never happened and I am stuck with a multitude of MF schemes, most of which I do not really want to keep. This weekend, I took a look at my MF portfolio after a long time and these were my observations.

  • I am currently investing in 4 MF schemes which are as follows. My plan is to continue investing in these for the future, at least till I have active income to do so:-
    • ICICI Focused Blue chip fund
    • ICICI Value Discovery Fund
    • HDFC Mid cap opportunities Fund
    • DSP BR Mid and small cap Fund
  • There are some other funds where I have significant investments but have dropped now. I will be keeping these for now but may want to sell them off during any annual review that I undertake. Future investments in these are unlikely:-
    • HDFC Top 200 Fund
    • IDFC Premier Equity Fund
    • Birla SunLife Frontline Equity Fund
    • DSP BR Equity Fund
    • Sundaram Select Mid cap Fund
    • Franklin India Blue Chip Fund
    • UTI Dividend yield Fund
  • There are some Close ended funds such as the ICICI Value Series Funds. I had invested in these as they give regular dividends which is useful to me. I will either continue with them or shift to other similar funds. To give readers an idea, ICICI Value Series 2 has given an XIRR of 30 % plus in the 3 year investment period.
  • Everything else, I want to get red of ASAP.

How do I plan to go about it? I have a feeling that next few weeks may be the best chance if Nifty goes to 9300 etc. Once the quarterly results  are through and the global geopolitical situation worsens, our markets are very likely to down to 8500 or even below that on the Nifty. Once I sell all my disposable MF, I will just be in cash and wait for the right opportunity.

What will I be buying with the cash I get? Well, one option is to invest in some of the stocks I had outlined in the earlier post. I am sure that if I buy these at Nifty levels of 8500 I will definitely see significant returns over the next 3 years etc. Another option will be to space out the stocks and invest in my 4 MF’s .

Unless the NIfty shows a rising trend due to a strong quarterly results, I am finally ready to pull the trigger on this. Even if it keeps rising, I will still sell when it reaches 9300, as I do not believe that is a value at which the Nifty can sustain itself.


Equity MF buying in 2017 – which ones to buy?

As I discussed in an earlier post, equity is an asset class which will probably perform the best in 2017. While I think it is a good idea to have both an MF and stocks portfolio, for most investors an MF portfolio will be a good place to start. In any case, I think most of my readers are having an MF portfolio and will definitely like to continue the same in 2017.

In this post, let me share the names of a few top funds in different categories which will make a great deal of investment sense in 2017. There are two important things to note here. Firstly, do not get swayed into buying MF through all kinds of statistical analysis and tools. These methods are amateurish even though I daresay they are sincere. Like every industry, the MF industry has professionals who are knowledgeable and neutral. It is very logical to go with their recommendations, reinventing the wheel has always been a rather poor idea. The funds suggested in this post are taken from the TV program “Investors Guide”. Secondly do not change your portfolio just because these funds are not there in it. There are several good MF schemes from different fund houses and changes should only be done when your annual review has shown some funds in your portfolio to be performing poorly. For new MF investors, I think it will make a lot of sense to pick some funds out of the ones mentioned in this post.

Coming to the fund categories, let us start with the multi-cap category. You must have this in your portfolio even if you are having only one category. Based on performance and potential, the following funds are recommended ones :-

  • ICICI Value Discovery fund
  • Franklin India High Growth companies fund
  • Birla Sun Life Equity fund
  • SBI Magnum Multi-cap fund

It will be important to have the mid-cap category fund in your portfolio too as these are the potential large caps of the future. Recommended funds in this category are :-

  • Mirae Asset Emerging Blue chip fund
  • Principal Emerging Blue Chip fund
  • UTI Mid-cap fund
  • Franklin India Prima fund

You also need to have the small cap category fund in your portfolio as, despite the risks, these are likely to reward you substantially in the future. Recommended funds are :-

  • DSP BR Micro cap fund
  • Franklin India Smaller Companies fund
  • Reliance Small cap fund
  • SBI Mid and Small cap fund

Finally the large cap category is important as it is likely to do well in 2017 and it provides some stability to your portfolio. Recommended funds in this category are :-

  • Mirae Asset India Opportunities fund
  • SBI Blue Chip fund
  • Birla Sun Life top 100 fund
  • Quantum Long Term Equity fund

For a good long term MF portfolio you just need to pick a fund from each category and invest in them regularly. You can decide on your allocation based on your risk taking ability, but even if you allocate 25 % of your money to each category, you will be fine.

Should you do SIP – not in general and in 2017 it will be a particularly bad idea. I will explain how you can invest in your portfolio in the next post.

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.


How will I buy MF in 2017?

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 !!!



My MF buying in 2016

As many of my regular readers will know, I had been investing in MF through SIP between 2008 all the way through to October 2015. Based on my experience of more than 7 years in MF investing and a much longer period of more than 2 decades in building a direct stock portfolio, I came to the conclusion in 2015 October that SIP was not the right way to invest in MF. After stopping the SIP’s I wanted to invest a certain amount through the year 2016. If you are interested in why I wanted to stop SIP, go ahead and read the posts in my blog.

My investments in MF are in the following funds and I was having SIP of 10000 Rs every month in each of them:-

  • ICICI Prudential focused Bluechip
  • ICICI Value Discovery
  • HDFC Midcap opportunity
  • DSP BR Micro cap

In 2016 I wanted to invest the same amount as before but it was to be based on the market levels rather than in a time dependent manner. Also, I was not worried if I could not invest the entire amount in this calendar year. After all, it is better to buy MF at an NAV of 45 rather than 50, by waiting for some time.

The proof of the pudding is always in the eating, so let me describe for you how my plan has worked out so far in 2016.

  • I have made 3 purchases in the period January to March 2016.
  • My overall investment goal was 4.8 lacs, out of which I have invested 60 %.
  • After March, I have not really got a buying opportunity as I do not want to buy any MF with the Nifty being more than 8000. I am happy to roll over the surplus to 2017.
  • My average buying price of the MF and their current price are as follows:-
    • DSP BR Micro cap – Average NAV 38.5 , CMP 54.3
    • HDFC mid cap opportunities – Average NAV 35.7 , CMP 47.6
    • ICICI Value Discovery – Average NAV 105.4 , CMP 129.3
    • ICICI Focused Blue chip – Average NAV 26.7 , CMP 32.9

I feel that my overall strategy of buying MF has been way more effective than SIP. At the end of the day I want to invest low and redeem at a high, which is the basic idea of any equity investment. Yes, I may not be able to invest the entire 4.8 lacs in this calendar year but that does not matter to me.

I am absolutely certain that Nifty will breach 8000 in the short term and I will buy more MF when that happens.

Conservative investors can try out this MF portfolio

In a high inflation economy like our’s it is almost an imperative to invest in equity as an asset class for any long term goals.  Investment in debt products will simply not have the required growth to meet your long term goals be it children’s higher education, their marriages or your retirement. Despite this it is an unfortunate reality that many investors shy away from investing in equity and go for products that are clearly not suitable.

One of the main causes for this is the volatile nature of the stock markets and how it is hyped up by the business media. The doom and gloom scenario often painted by the TV channels and the newspapers make it seem that the stock markets are only a little better than gambling casinos, where only the exceptionally skilled or lucky people will have any chances of decent returns. Many investors are temperamentally not suited to high volatility and it is almost impossible for them to see a reduction in their capital value, even if the decline may be only temporary in nature.

While I can understand the psychology of such investors, their investments in fixed income and other debt products will unfortunately not take them very far. With the FD rates coming down in a relentless manner we will very soon have rates below 7 %. Investing at these rates of return when real inflation is equivalent or higher for most items of expenditure. In order to get these type of investors started in equity investments. what is really needed is a low volatility portfolio which will be able to manage the anxiety levels and hopefully pave the way for them to take a little more risk as time goes by.

The below conservative portfolio has been designed by Dhirendra Kumar of Value Researcn Online and was televised in the program “Investors Guide” in ET Now. Over the last 10 years, an investment of 10000 Rs per month has yielded an XIRR  of 10.5 %. While this is not earth shattering, it is way better than some of the returns investors are getting from their current fixed income and other debt instruments. The 4 funds in the portfolio are:-

  1. FT Dynamic PE Ratio fund.
  2. HDFC MIP.
  3. Reliance MIP.
  4. Tata Balanced fund.

The reason the portfolio works is simple – it tries to take the advantage of equity returns while lowering risks wherever possible. For example, the FT fund invests more in equity when the PE is lower and shifts money to debt when the PE begins to heat up. The Tata Balanced Fund has a similar mechanism, though the way it is done will be different. Also, in a Balanced fund 30 % or more is always in Debt anyway. The MIP funds will have much of the money in Debt but they are able to take advantage of equity buying at the right times in order to increase their returns overall. So, while the returns of this portfolio will never be spectacular due to the reasonably high debt component at most times, the risks are definitely on the lower side. In other words, a perfect recipe for conservative investors.

If you are hesitant about starting your equity investments you can begin with this portfolio. Over a period of time, you will be glad that you took the plunge.

A Growth portfolio for MF

The portfolio which you need to have for your MF is dependent on the stage of life at which you start to build it. In the previous post we had discussed Aggressive portfolios which are really suited for investors who have more than 20 years in their investment horizon. For such a person, focus on mid cap and small cap oriented MF is a logical choice.

What happens when your time horizon is reduced to say 15 years or so? This is quite possible as many investors have not looked at building up an MF portfolio till the time they are 35 or so. In such a case, their time horizon is probably 15 years – on the positive side, they will probably be able to invest more as their starting income base is higher. In such a situation the Aggressive portfolios we had in the last post will not be an ideal solution for them. Investors Guide, suggests a different model for these profile of people, termed as the Growth portfolio.

The essence of the growth portfolio is to balance the risk and reward, keeping in mind the time horizon available to the investor. You are trying to manage your risks here and at the same time you want to optimize growth. You therefore look for funds which do both of these. One other important factor in managing risk/returns is diversification. An MF focused on international opportunities will give you this.

The portfolio recommended by Dhirendra Kumar of ValueResearch Online is as follows. Note that all the 5 funds suggested have an equal weight of 20 %.

  1. Motilal Oswal NASDAQ ETF 100.
  2. ICICI Prudential Dynamic.
  3. PPFAS Long term value.
  4. Quantum Long Term equity.
  5. Birla Sun Life equity.

Notice the differences from the Aggressive portfolio. All funds here are either looking actively for value or are focused on large caps with lower risk. There are also two funds that look at diversification in international markets and risk reduction through appropriate asset allocation. Overall this portfolio seems to have all bases covered.

While I do think this will be a pretty good portfolio for a 35 year old ( or older ) investor who is getting started, I must say these are not really funds I have invested in now. At an earlier point I had invested in 2 but gave it up as I believe in keeping my debt and equity investments separated at all times and carry out my own asset allocation. I also had 5 some years back but gave it up in favor of some funds which I thought were better in the large cap space. I think 1 is too narrow in it’s focus and prefer an international fund with wider coverage. 3 and 4 have just not been in my radar so far.

However, the above is a pretty decent portfolio and is likely to give annualized returns of 12-15 % for investors over the time horizon of 15 years or so.If you are just starting to build up a portfolio, this can be the one to go for.