When Do I Buy Into Mutual Funds?

My mutual fund investing strategy is anything but systematic. While I do know how much money I want to set aside each month for investing in mutual funds (across various financial goals), I don’t follow the common Systematic Investment Plan (SIP) strategy (I used to do that at one point in time by investing on a common date each month but not anymore). Rather, these days, I accumulate the cash each month against each financial goal and buy into respective mutual funds each time there is a 250-point dip in the market (for me, the SENSEX).

I don’t specifically recall how I settled on this “250-points strategy” but that’s become a habit now and it has served me quite well. Over the past few months, I’ve managed to buy-in at very low price points and I’m already seeing the results payoff. The 250-point dip doesn’t have to be on a single day. So, for example, if the SENSEX dips from 18,750 to 18,500 over a 3-day window, that’s good enough for me. Further, the dip has to happen by 2 pm (because the cut-off to get that day’s NAV is 2.30 pm) so that I can take a call on whether to invest or not. If I believe that the market would tank further the next day, I wait till 2 pm the next day.

A pretty unusual strategy (that’s why you read this blog right?) but if you have the time and inclination it’s worth executing. Buy units as cheaply as you possibly can and watch them go up.

What could be more fun?

On a similar line of thought, I happened to read this pretty useful note from Value Research (emphasis mine):

In India, the stock markets seem to have settled into a pessimistic mood. There are the occasional bright days, but in general bad news of all kind has created a miasma which doesn’t seem to be anywhere close to clearing. It’s just the kind of time when the whole idea of investing, specially investing in equity for the long term loses any urgency. You don’t get the feeling that you’ll be missing a bus by not starting fresh investments now. No great gains appear to be possible and therefore no great opportunity loss will take place if you don’t invest. So that equity SIP that you could have signed up for will probably go unstarted till you can feel some excitement of making money in your bones.

Unfortunately, for those who are saving and investing for the long-term, this would be downright dangerous frame of mind. This is exactly the kind of time in which you can lay the foundations of great long-term returns. Mainstream equities are stagnant, with frequent bursts of pessimism that drive prices down. An year or two of monthly equity SIPs in this supposedly uninspiring market and you would have built up a sizable chunk of equity holdings that have been acquired at a relatively low average cost.

For the thinking saver, these are actually very exciting times, the sort when you can quietly lay the foundation of your future fortune.

Couldn’t agree more. I’m slowly and steadily hiking up my equity exposure.

12 thoughts on “When Do I Buy Into Mutual Funds?

  1. What about selling? Do you sell when markets go up by 250-300 points also? By doing a FIFO of the units, you may be selling units you purchased last year and hence incurring only long term gains.
    Also, what happens when there is a sustained adverse market condition, such that there is a 250 pt decline every 15 days or so for 3-6 months (1500 point declines are not new). Do you invest all the money you’ve set aside, or do you put in a part of that, expecting to put more in case the decline is deeper?

  2. Ramu,

    I think selling is not a good idea reg MF as we may loss 1%. But considering for long term, we need to buy whenever there is a DIP. But if we don’t have time , then we can go for VIP thru fundsindia..Vinaya , Am I right??

  3. Vinaya,

    Good strategy but what if market just keeps going up. For example the current ride of over 1500 points. Would you still wait for the market to come down and then invest.
    I think apart from SIP’s we can follow this strategy to invest in lump-sum if there is a sharp correction.


  4. @Ramu:

    Suppose I’d accumulated Rs 25,000. On each dip, I’d only invest Rs 5,000.

    @Madhu, Ashok:

    Does your FundsIndia account allow you to define custom rules for your VIP?


    Yes. I’d wait for a dip to occur even on the way up.

    Another interesting strategy would be to have fixed Index-points. Say, 18,750, 18,500, 18,250, and 18,000. Each time the Index goes below an Index-point you’d invest some portion of your accumulated funds.

  5. @Vinay,

    FundsIndia do it using an algorithm , we can define the expected rate of return return.. Default is 15% and this value is usedwhen calculating the value of next installement. :)

    This is good for an Non-accounts guy like me :)

  6. Hi Vinay
    I am 22 years old and just started with a job. I plan to invest 5K per month in mutual funds. Infact, I already opened an account and made initial investments in different schemes today itself. I chose following funds:
    Now, my questions are:

    1.) Is my portfolio right?
    2.) 1k which is not shown above is lying pending to invest in gold. Since I donot have demat account, I cannot buy gold etf. I was planning to invest in reliance gold fund but after reading some articles on their expense ratio, I have put an idea on hold. Kindly suggest me on how to make investment in gold then???:O
    3.) Now comes the main question. In order to set up SIP with fundsindia, I am facing some problem since they dont have tie up with my bank for auto debit (something like that). But I didnot want SIP in first place. I rather plan to invest myself in a disciplined way every month after watching market. Now the question is : Does it make any difference whether I invest in hdfc top 200 via SIP or myself invest every month(flexible in this case). I mean, by investing manually every month, am I missing some of the advantages of SIP like compounding returns, lesser maintenance charges by mutual fund house to SIP customers or anything like that..:O
    4.) Also, I need to have tax rebate. What are the best investment options for tax savings with decent returns?? Initially, I wanted to add hdfc tax saver as well but lock in period of 3 years made me stay away from that.

    Kindly reply to these issues of mine. Shall be very thankful to you.

  7. Vinay,
    I thought I’m the only guy doing like this….investing on MF,on every big dips…but ofcoz this is not always your busy work-a-day life…do u set a 2pm trigger ?

  8. Vinay,
    I thought I’m the only guy doing like this….investing on MF,on every big dips…but ofcoz this is not always your busy work-a-day life…do u set a 2pm trigger ?

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