Wednesday, January 22, 2014

Buying MF - not in SIP

For most of the people buying Mutual Fund in SIP is the best way. 

However, there are few people who are not comfortable with SIP. They argue that I have 30 days to invest, I will decide when to buy. These people smartly buy each and every month whenever market falls by some points and gets the benefit of market volatility.

Make no mistake, these are highly motivated and disciplined set of people. They get market updates at-least once before 2pm. As they say, "do not copy if you cannot paste", if you are not confident of initiating a transaction in mutual fund whenever market falls, each and every month for almost 15-20 years, then SIP is better way for you.
This post is not about SIP vs. bulk buying. This is about how to or rather when to initiate a transaction to buy MFs.  The cut-off for MF purchase is 3 pm. So any transaction initiated before 3 pm will be purchased with today's NAV or else it would be bought on tomorrow's NAV.
Suppose, you have monthly target of investing 3k in MF. Divide it into few smaller parts (not more than 3 or 4). Track market daily. If any day, you feel market is falling by some points, punch a transaction of 1k. Follow this 3 times a month. There could be few disadvantages of this approach for the people who are not so dedicated and driven by greed:
  • Some may keep waiting, thinking that tomorrow market will fall more and will purchase. In this process, you may miss the bus and even the target of 3k.
  • Procrastination is a killer and could defeat the whole objective.
  • You have to keep track of market on daily basis and act (last 2 words are important).
If followed with intelligence and common sense, this approach may give 1-2% more returns than the average SIP. This is nothing but using market volatility to our advantage.
However, I prefer SIP way. This is the best way for common man.


2 comments:

  1. Viren nice enough - but how about those who do not have any time in day to monitor status of MF or market ?

    ReplyDelete
  2. Kaustubh, for them, read the last line of post :)

    ReplyDelete