Buy on dips

[asterix24]

I am not sure if I have clarified this earlier. My intention is to catch the downside, but if not, I do invest into my MF much like my SIP would have done. It requires a lot of patience and an online broking account to do that.

Happy Investing !!

 

[drsambu123]

It's almost immposible to "buy at dips" via SIP if you don't have interactive broker which provide addtional investments on SIP in-between due dates. However one can choose index funds as our main view is not diversifying portfolio but taming and timing the falls and rises. 1 such fund is IDFC Nifty. HDFC Sensex Plus/JM Nifty can also be used though your first investment requires 5000 in later 2 while IDFC nifty requires just 500.

08/06/2011 Additional Investment 500.00 10.4810 47.705 47.705
10/06/2011 Additional Investment 500.00 10.4174 47.997 95.702
15/06/2011 Additional Investment 500.00 10.3457 48.329 144.031
20/06/2011 Additional Investment 1,000.00 9.9912 100.088 244.119

On 8th Nifty closed at 5526, 10th it was down 1% closed at 5485, 15th 5445 and 20th 5257.90 almost 250 points from initial investment. Now NAV stands at 10.42 and on investment of 2500 returns are 2545 or rs 45 profit that comes around 1.75% without any exit load.

Now I've option of taking 2500 out and keeping units worth 45 with me or redeeming full amount. The same I did with HDFC mid-cap and SBI Magnum equity. SBI Magnum equity is up by 2.52% and HDFC mid-cap by 2.67% but they'll attract exit load hence it'll be back to square one, around 1.5% returns.

One should have deep pockets to put money on every fall. What if Nifty didn't go up by 3% on friday and fell by 3%? I was to arrange almost 3000 each fund to average out the navs! As market goes down further amount to pour in increases. One can't put same amount on 1% fall to average out. Hence to catch dropping knife is dangerous and should not be attempted until one is expert and have patience, money and can track funds on regular basis. One will get good returns in short as well as long run. A catch on 1% fall or 10% fall makes no difference until market rises to our entry levels and till that time it's almost risking like equity. The risk return pay off is high here in compare to equity as your set of shares in portfolio may rise or fall but in long run it'll only rise if not today after 2 years.

I have funds india .com account which allows to buy additional units in existing SIP MF on any date. SIP also we can choose any date for any MF. Some MFS give dates like 5, 10,15,20 etc. Funds india allow us to do SIP at any date for those funds also. What they do is they buy like a additional units on any dates we ask .
One more option we can use in funds india is u pause the SIP temporarily.. We can pause if the market suddenly rallies more than 15%.( if u already planned like that).
Though catching the falling knife is dangerous, if we have patience and long term view , its not at all a problem. U cannot catch the bottom ever.But u buy at very reasonable rate when u buy after 25-30 % corrections Generally market achieves new peak every 4-5 years.. That is not too long....

 

[drsambu123]

From your post,

Thanks for the explanation... I have a doubt ...If market raises on those days(1,7,14) why dont we to choose one day prior to that. so that we will get more units.
Yes I agree that chances of 10-15% correction is not often occurs. I buy for even 5% correction. But in the long run it doesnt make much difference... Thats why I am not bothered for 5% correction... But if u see the past datas even > 25% correction happens atleast once in 2-3 years. If we catch those corrections we will do well in our life.. Ultimate aim of doiing this is to generate 2-4% return over regular date based SIP return.... In the long run (20-30)years that extra return itself will give huge amount.


Ok, I will answer one by one. Choosing a day for SIP is not easy. It depends on the flexibility provided by the AMC. Not all fund houses are open for SIP investment on any day of the month. Only if you choose to invest by yourself, can you try to time on specific dates, which is the strategy I am advocating.

Coming to 25% correction, it is really interesting read. However, to extrapolate my principle, I would advocate this. If one has free cash, then pump in more money as the market corrects more. Over the long run, as you have rightly pointed out, it will pay off. However, key thing to note is that you are not exactly timing the market as you should have a separate independent investment plan and you have extra spare cash to pump in.

Personally, I am not sure if I would like to save money over 2-3 year period waiting for the crash. This comes from my limited understanding on how to predict if a specific dip is a crash or just volatility. I would look forward to your viewpoint on this.

Happy Investing !!

U can start SIP at any date for any fund in Funds india...

To buy more during significant corrections u should have alternative investments. usaually i maintain 20% in liquid funds... I increase my buy during each corrections. I have my formula. By the time market corrects 30 % i would have exhausted my liquid funds.. The question arises here is what are we going to do if market corrects further? I generally try to maintain around 10% in Gold ETF( i have to do. Until now i have not done. i will do gradually over 1-2 years). So this gold ETF helps to buy additional units when market corrects 30-35%
If market falls further what to do? If u have any other source, try to mobilise.. but never barrow for interst... otherwise just continue ur SIP calmly... Within few months to a year market will turn around... We should never be greedy to catch the bottom .. Which is impossible also...

When market increases continously I have different strategy.. When market goes above 20 % just i skip 1 out of 5 MF SIPs and divert that money to liquid fund or gold ETF.. If market goes above 25% i skip one more SIP and put the amount in liquid or ETF.. But i wont increase my non equity portfolio more than 30-35%..

 

[shilpaks7]

im thinking on using this strategy for one fund (Quantum Long Term Equity or SBI Emerging Businesses) with any surplus i may have in a month (apart from the regular SIPs for other funds). guess will buy directly from the AMC (esp Quantum).

almost like VIP but i decide the how much and when i guess.

Any thoughts on what formula to use to decide when and how much to invest, anything tried and tested and successful?

 

[drsambu123]

im thinking on using this strategy for one fund (Quantum Long Term Equity or SBI Emerging Businesses) with any surplus i may have in a month (apart from the regular SIPs for other funds). guess will buy directly from the AMC (esp Quantum).

almost like VIP but i decide the how much and when i guess.

Any thoughts on what formula to use to decide when and how much to invest, anything tried and tested and successful?

U can buy through quantum online services. Take sensex or nifty level when u start investing from that u calculate the 5%,10% down , 15% down etc. Suppose if u start today sensex is 18400. 5% down is 18400-9200. 10% down is 18400-18400 points. Like that u calculate the down sides and use that level(approximately) as triggers to buy additionally...
Next big Q is how much to buy?
I decide my aditional buy amount based on my debt amount and level of correction. I dont decide based on my regular SIPs amount.. that will continue without any interference in falling market....
To make it simple. If u have 50000 in Savings A/C or liquid fund which meant for equity investment, if market corrects 5%, u can buy for 2500. 10% -5000
15%- 7500, 20%--10000, 25%-12500..30%-15000 By the time market corrects 30% ur debt component will be exhuasted. That u should be aware. If market corrects further u may not have money to buy. that should be acceptable and continue ur SIPs calmly... I f u want to go slow u can go Rs2500, 3000, 5000, 6000, 7500, 8000, 9000, 10000. In this method u can buy upto 40% correction.Its not rocket science. but simple logic of buying more and more(weighted average) when market dips and getting ur NAV well averaged.....
If u see the past history , periodically market corrects significantly(25-50% within 2-3 years).
Do the reverse when market goes up.. But i go very slowly .. that means i dont book even minimal profit unless market goes more than 40% from the bottom.... But slowly i divert the SIP amount to liquid when market goes above 20% from bottom and build the liquid kitty again. But i never bring down the equity MF to less than 70% of my over portfolio...
At the end of the day we should not forget the quote of TIME IN THE MARKET IS MORE IMPORTANT THAN TIMING THE MARKET.....

 

[shilpaks7]

ty drsambu, but i am not sure if i will have 50k to invest. i was thinking of investing any expenses leftovers of previous month (invest for one year), which probably be in the 3-5K per month sorta range i think.

 

[shilpaks7]

was trying to check some formula i got from a friend, that wont work

 

[drsambu123]

ok. ifu get anything interesting post here .We shall discuss.....

 

[Drureduplerry]

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Nice job, really good article mate

 

[drsambu123]

Market is range bound.. SIPs going on... May be if market goes below 17500 we can buy additional units.... If goes above 20500-21000 may be we can skip one or 2 MF SIPs and increase the liquid pool.....