Strategy to invest in Mutual fund

In this article I have discussed strategy to get extra profit from mutual fund. I am sharing based on my experience and calculation so that mutual fund investor can earn more than SIP method.

I have explained in details with calculation along with example so that you can understand easily

Almost every person knows about the mutual fund. If you don’t know then, mutual fund is nothing but way to create wealth with the help of fund managers.

There are various types of mutual fund, based on risk and goal.

I will directly come to the point, How should you invest in mutual fund.

There are two ways to invest:

SIP

Lump sum 

SIP:

When you choose SIP then you will have to pay monthly basis. Let’s take an example if you have started SIP of Rs 5000/- on 1^st Aug 2020 then every month the Rs 5000/- will be deducted from your bank.

But, it is not a good way to invest using SIP because market work almost 20 days in month and the NAV changes daily.

 

Let’s understand, on 1^st Aug 2020 you have invested Rs 5000/- , on that day the NAV was 10.

So, you have been allotted 500 Units

Allotted unit = (Invested amount for 1^st SIP / NAV) = (5000/10) = 500 Unit

 

Now market went up in August and your NAV is now 10.3. Now consider today is 1^st Sep 2020 and it’s time for 2^nd SIP of Rs 5000/-.

Now for 2^nd month you will get

Allotted unit = (Invested amount for 2^nd SIP / NAV) = (5000/10.3) = 485.4369 Unit

Now you have invested total Rs 10000/- and you have total Unit (500 + 485.4369) = 985.4369

So your Rs 10000/- has become (Total Unit * Current NAV) = (985.4369 * 10.3) = Rs 10149.93/-

You might be happy now as your value has increased. But still it is not a good way to do SIP.

Why???????

 

Let’s understand further, till now you have done two SIP.

Now market went down in September and your NAV is now 9.85. Now consider today is 1^st Oct 2020 and it’s time for 3^rd SIP of Rs 5000/-.

Now the for 3^rd month you will get

Allotted unit = (Invested amount for 3^rd SIP / NAV) = (5000/9.85) = 507.614 Unit

Now you have invested total Rs 15000/- and you have total Unit (500 + 485.43 + 507.614) = 1493.044

So your Rs 15000/- has become (Total Unit * Current NAV) = (1493.044 * 9.85) = Rs 14706.48/-

What happened? You are in loss now.

Don’t become sad now, In long term SIP will give profit to you but still I will not recommend this type of SIP investment.

Why??????

Remember when you have started Sip at that time the NAV was 10 and after 1 year it has become 11.2

Consider below table:

Month	SIP Amount	NAV for Month	Unit Allotted
Aug	5000	10	500
Sep	5000	10.3	485.4369
Oct	5000	9.85	507.6142
Nov	5000	10	500
Dec	5000	9.9	505.0505
Jan	5000	9.7	515.4639
Feb	5000	10.1	495.0495
Mar	5000	10.3	485.4369
Apr	5000	10.1	495.0495
May	5000	10.4	480.7692
Jun	5000	10.6	471.6981
Jul	5000	11.3	442.4779

So you have invested 5000 * 12=60000

Now if you do average the value of Average NAV is 10.2125 which the actual price at which you have invested and total Unit allotted is 5884.047

And your 60000 has become (Total Unit * Current NAV) = (5884.047 * 11.3) = Rs 66489.73/-

Here you got total Rs 6489.73/- which is nothing but (10.81%).

But still I won’t recommend this method because I have got less return.

Now how should you invest? (Lump sum)

I will recommend the below strategy:

As we know market moves up and down, based on that NAV get affected. I know very well when you start investing in mutual fund most of the people monitor their return daily.

You will study market or look for the advice from other, which mutual fund should I choose to invest for better return.

I will prefer lump sum over SIP.

Invest around 50% of your investment say you have invested 30000/- at NAV 10 then you will be allotted 3000 Unit after and a month if you see NAV around 9 or 9.5 invest 20000/- more if it goes below or above 9.5 or near 10 then  invest 10000/-.

Here I have taken 10, 9.85 and 9.9 from above table for respective month

Let’s understand with the help of table

Month	Invested Amount	NAV	Unit Allotted
Aug	30000	10	3000
Oct	20000	9.85	2105.263158
Dec	10000	9.9	970.8737864

 

In this scenario you have got 6040.557863units. Now on next year if it goes to 11.3 as per previous table.

Your 60000 has become (Total Unit * Current NAV) = (6040.557863* 11.3) = Rs 68258.31/- which is around 13.75%.

In previous scenario you had earn Rs 66489.73/- and in this scenario you have earn Rs 68258.31/-

OR

I have one more strategy which will give you more return but here you need to do some study. It is very simple to study but somewhat difficult to manage. It is related to stock investment.

Take one mutual fund which you think will give good return. Check their holding % and invest accordingly.

Let’s understand

You want to invest 60000/- and you selected XYZ mutual fund consider blow table

XYZ mutual fund
Holding stocks	Percentage	Your Investment Should be for Rs 60000
A	20	12000
B	20	12000
C	22	13200
D	9	5400
E	8	4800
F	7	4200
G	9	5400
H	5	3000

In this method you will earn dividend also. I have explained in detail in other article.

NOTE: Mutual fund also invests in other financial things. So you can modify percentage holding and create your own portfolio.