Hi Friends,
There are many stock trading systems, based on fundamentals or technicals, but I have not come across any system for MF which would seperate emotions and subjectivity from investing and make it a simple objective process for long-term investment. I've been trying to develop a system. Here is a brief of it. Please review, comment, and help improve it.
It is a kind of SIP assuming that one invests the same amount, every month, for long term, preferably in diversified equity funds.
In order to successfully investing in MF, we need to know 3 things:
1. The best MF.
2. The best time to invest.
3. The best time to pull out.
SIP has 2 problems:
A) Suppose you chose 5 best funds to invest in and divide your capital equally among them. So, effectively you have only 1/5th of your money in the best fund or in other words 4/5 of your money is not giving the best return.
B) Suppose you select best 5 funds in the month of January and give cheques for the next 12 months. It is quite possible that some of the funds, which were best in January, starts showing poor performance in the subsequent months. Hence, you are now investing in funds which are not the best.
I have found the solution (I think I have, but it might not be the solution) for problem #1. i.e., the best MF that deals with problems with SIP too. Here is the method.
Divide your monthly investible capital in 3-4 equal parts. Now, find the best funds for different time frames, e.g., 6 months, 1 year, 3 years, 5 years. For example, over the last 6 months, Sundaram Select Midcap gave the best return of 18%. Likewise, for 1 year, it is Sundaram Select Midcap; for 3 years, it is SBI Magnum Global; and for 5 years, it is Reliance Growth. At the time of investing, one has to find out the best fund in each time frame and invest one equal part in each fund. So, if I have Rs 4000 to invest, then I will put Rs 1000 each in Sundaram Select Midcap (best fund over 6 months), Sundaram Select Midcap (best fund over 1 year), SBI Magnum Global (best fund over 3 years), and (best fund over 5 years). Now, if in the next month, I have Sundaram Select Midcap, DWS Alpha Equity, HDFC Equity, and SBI Magnum Contra for different time frames, I invest in these funds instead of funds I invested in last month. In this way, I always stay with funds which are the best for any particular time-frame and over a long time, I have more allocation in the fund which has performed best consistently.
One drawback is that when you invest in a new fund for the first time, you have to invest more (e.g. Rs 5000) than you equal part and hence changing allocation ratio and increasing the amount to be invested in that month. To answer this, firstly most of the times the best funds continue to be best months after months. Secondly, over a long time, these small differences even out and your allocation ratio becomes near perfect. Thirdly, if you have to invest more in a month, then its not a bad thing anyway.
Method To Find Best Funds:
Go to http://www.valueresearchonline.com/funds/fund_selector_quick.asp. Choose the options to filter out funds and search. For example, I just want to invest in open-ended diversified equity funds and hence I choose the appropriate options.
For "Fund Returns" section, I believe that one should invest in only those funds which at least beat the average return of respective category over any time frame. So, if average return over 1 year for equity diversified funds is 40%, then you should filter only those funds which have given 40% or more return over 1 year. Unfortunately, in the "Fund Returns" section you cannot put custom values. However, you can take the nearest value of the average.
For "Fund Rating" section, I should mention that valueresearchonline does not rate funds newer than 3 years. There might be funds which are new but good performers or funds which might have performed badly in the past but are great now. So, select all the ratings.
Now click "Submit Query" and you get the results. From the drop down menu on right hand side, select "Performance." When you click on the time periods, you get the funds sorted out with results in ascending or descending order for that time period.
That was the first part of the story. The latter 2 parts, i.e, the best time to invest and the best time to pull out, remain unanswered because I do not have the answers. Please comment on these as well as any faults or improvement that can be done in the method stated above.
Thanks in advance
Ravi S Ghosh
[email protected]
There are many stock trading systems, based on fundamentals or technicals, but I have not come across any system for MF which would seperate emotions and subjectivity from investing and make it a simple objective process for long-term investment. I've been trying to develop a system. Here is a brief of it. Please review, comment, and help improve it.
It is a kind of SIP assuming that one invests the same amount, every month, for long term, preferably in diversified equity funds.
In order to successfully investing in MF, we need to know 3 things:
1. The best MF.
2. The best time to invest.
3. The best time to pull out.
SIP has 2 problems:
A) Suppose you chose 5 best funds to invest in and divide your capital equally among them. So, effectively you have only 1/5th of your money in the best fund or in other words 4/5 of your money is not giving the best return.
B) Suppose you select best 5 funds in the month of January and give cheques for the next 12 months. It is quite possible that some of the funds, which were best in January, starts showing poor performance in the subsequent months. Hence, you are now investing in funds which are not the best.
I have found the solution (I think I have, but it might not be the solution) for problem #1. i.e., the best MF that deals with problems with SIP too. Here is the method.
Divide your monthly investible capital in 3-4 equal parts. Now, find the best funds for different time frames, e.g., 6 months, 1 year, 3 years, 5 years. For example, over the last 6 months, Sundaram Select Midcap gave the best return of 18%. Likewise, for 1 year, it is Sundaram Select Midcap; for 3 years, it is SBI Magnum Global; and for 5 years, it is Reliance Growth. At the time of investing, one has to find out the best fund in each time frame and invest one equal part in each fund. So, if I have Rs 4000 to invest, then I will put Rs 1000 each in Sundaram Select Midcap (best fund over 6 months), Sundaram Select Midcap (best fund over 1 year), SBI Magnum Global (best fund over 3 years), and (best fund over 5 years). Now, if in the next month, I have Sundaram Select Midcap, DWS Alpha Equity, HDFC Equity, and SBI Magnum Contra for different time frames, I invest in these funds instead of funds I invested in last month. In this way, I always stay with funds which are the best for any particular time-frame and over a long time, I have more allocation in the fund which has performed best consistently.
One drawback is that when you invest in a new fund for the first time, you have to invest more (e.g. Rs 5000) than you equal part and hence changing allocation ratio and increasing the amount to be invested in that month. To answer this, firstly most of the times the best funds continue to be best months after months. Secondly, over a long time, these small differences even out and your allocation ratio becomes near perfect. Thirdly, if you have to invest more in a month, then its not a bad thing anyway.
Method To Find Best Funds:
Go to http://www.valueresearchonline.com/funds/fund_selector_quick.asp. Choose the options to filter out funds and search. For example, I just want to invest in open-ended diversified equity funds and hence I choose the appropriate options.
For "Fund Returns" section, I believe that one should invest in only those funds which at least beat the average return of respective category over any time frame. So, if average return over 1 year for equity diversified funds is 40%, then you should filter only those funds which have given 40% or more return over 1 year. Unfortunately, in the "Fund Returns" section you cannot put custom values. However, you can take the nearest value of the average.
For "Fund Rating" section, I should mention that valueresearchonline does not rate funds newer than 3 years. There might be funds which are new but good performers or funds which might have performed badly in the past but are great now. So, select all the ratings.
Now click "Submit Query" and you get the results. From the drop down menu on right hand side, select "Performance." When you click on the time periods, you get the funds sorted out with results in ascending or descending order for that time period.
That was the first part of the story. The latter 2 parts, i.e, the best time to invest and the best time to pull out, remain unanswered because I do not have the answers. Please comment on these as well as any faults or improvement that can be done in the method stated above.
Thanks in advance
Ravi S Ghosh
[email protected]
Last edited:
