Last Updated on December 29, 2021 at 4:55 pm
Social media seems to be an excellent psychological indicator of market sentiment. When the doomsday and recession forwards increase, investors with financial needs decades away should probably buy more equity! Among those who see this as an opportunity, some wish to know “is this a good time to buy mid cap and small cap mutual funds?” The answer is not a simple yes or no. We need to ask the question in a different way.
Before we begin, If you are working with a SEBI registered fee-only financial advisor (from my list or elsewhere), please help by providing feedback via this survey. We have had a phenomenal response so far, thank all for your time!!
Midcap Index market trend
Using the Nifty Valuation Tool (you can use this to find if the market is expensive or cheap in multiple ways) we can quickly check market trends in the mid cap and small cap space (I shall present results for mid cap alone here).
I shall only present results here. To find out more about how to interpret results for each indicator, please consult: Find out if the stock market is expensive or cheap in multiple ways
Join 32,000+ readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email! (Link takes you to our email sign-up form)
🔥Enjoy massive discounts on our robo-advisory tool & courses! 🔥
The double moving average shows midcap index price to be below both the 1Y and 6month average with the 188-day line below the 364-day line. If we go by past history, this is a buy signal.
The trend and volatility indicator, Bollinger bands show good separation with the price hitting the lower band. This is generally considered as buy signal again. Read more: Spotting market trends with Bollinger Bands
The mid cap index PE is also reasonably favourable (although the history is quite short). It could go down further, but that does not mean one needs to wait.
So we now buy mid cap and small cap funds?
I am not irresponsible to offer a simple yes or no answer to this. I will provide a qualified “no, do not buy” response. Why? Most investors who ask questions like these have no strategy (they will not be asking if they had one!). So please first get yourself an investment strategy first.
If you hold multicap funds plus or minus aggressive hybrid funds, then I suggest you continue investing in them. Let the fund manager worry about increasing allocation to mid caps or small caps. This is the most straightforward, safest approach suitable for everyone.
If you insist on having individual large cap (LC), mid cap (MC) and small cap (SC) funds, then take a moment to understand asset allocation. Suppose you decide to have an equity portfolio with 50% LC, 25% MC and 25% SC and started investing two years ago via SIP.
Today the asset allocation would be 52% LC, 26% MC, 21% SC (for the funds selected, think of this as only a trend). That should automatically tell you what to do! Rest the equity allocation back to 50% LC, 25% MC and 25% SC and you will automatically buy more of small caps. There is no need to look at market trends!
For the example, considered here, 4% of the LC fund holding should be sold, 5% of MC holding sold and added to the SC folio. It would be a 16% increase in the SC folio. Do you have the guts to do this? Or will you still think about adding new investments in your MC and SC funds?
If you manage the additional risk from mid cap and small cap holdings, the returns will automatically fall in place. For this, you will need to have a target asset allocation and rebalance as mentioned from time to time. Buying on market dips is a waste of time
The problem is that many investors believe that they manage portfolio risk by changing the amounts that they invest, where they invest and when. This is plain silly. We need to tell ourselves that we are going to get rich. The amount we invest each month will soon be 1% of our invested amount. After that, it will become 0.1%.
Once we adopt that attitude, we recognise that we need to worry about the money already invested and not the money that we are about to invest (at least not as much).
So if you want gains from midcaps and small caps (funds or stocks), have an asset allocation and control it from time to time. The rest will fall in place.
🔥Enjoy massive discounts on our courses, robo-advisory tool and exclusive investor circle! 🔥& join our community of 7000+ users!
Use our Robo-advisory Tool for a start-to-finish financial plan! ⇐ More than 2,500 investors and advisors use this!
Track your mutual funds and stock investments with this Google Sheet!
We also publish monthly equity mutual funds, debt and hybrid mutual funds, index funds and ETF screeners and momentum, low-volatility stock screeners.
- Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
- Have a question? Subscribe to our newsletter using the form below.
- Hit 'reply' to any email from us! We do not offer personalized investment advice. We can write a detailed article without mentioning your name if you have a generic question.
Join 32,000+ readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email! (Link takes you to our email sign-up form)
About The Author
Dr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! ⇐ More than 3,000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter the market condition is!! Watch the first lecture for free! One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Our new course! Increase your income by getting people to pay for your skills! ⇐ More than 700 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!
Our new book for kids: “Chinchu Gets a Superpower!” is now available!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook is for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Do you want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or get the Tactical Buy/Sell timing tool!
We publish monthly mutual fund screeners and momentum, low-volatility stock screeners.
About freefincal & its content policy. Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified with credible and knowledgeable sources before publication. Freefincal does not publish paid articles, promotions, PR, satire or opinions without data. All opinions will be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
- Twitter @freefincal
- Subscribe to our YouTube Videos
- Posts feed via Feedburner.
Our publications
You Can Be Rich Too with Goal-Based Investing
Published by CNBC TV18, this book is meant to help you ask the right questions and seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want
This book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.Your Ultimate Guide to Travel
This is an in-depth dive into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, and how travelling slowly is better financially and psychologically, with links to the web pages and hand-holding at every step. Get the pdf for Rs 300 (instant download)