Nifty 50 investment – what is the Best time to buy and sell

Nifty 50 investment – what is the Best time to buy and sell

Nifty 50 investment, if you are planning to do? Then you know that securities market investment is subject to market risk.

In addition, volatility is one such risk.

nifty 50 investment

Moreover, standard deviation is a statistical formula that tells us that the price of a data set will move away from its (data set) average or mean.

In addition, the epirical rule is also a statistical formula, which is also known as the 3 sigma rule, or 68%-95%-99.7% rule, and says that most of the data points will return within the values stated above.

And we can use this rule to nifty 50 and predict the levels at which to buy and levels at which to sell with high probability.

Yes, you read correct; no analysis will be 100% accurate.

and it will give you a probability.

Now, let’s apply this empirical rule to nifty 50 and do some analysis.

What is an empirical rule? ….

empirical rule

This rule works under 3 sigma rules.

1 sigma rule says that 68% of times the price or value will remain in between average + or – SD.

In addition, the 2 sigma rule says that 95% of times the price or value will remain in between average + or – SD.

and 3 sigma rules say that 99.7% of times the price or value will result in between average + or – SD.

Let’s apply the empirical rule to nifty 50…

You can see in the above image that if you invested 1 lakh in 1991, now in 2025, the value of 1 lakh is 75 lakh.

In addition, the average ROI is 17%.

And the standard deviation is 30%.

Finally, the CAGR is 13.6%.

Now apply the 3 sigma rule…

3 sigma rule

 

You can see in the above image that the nifty roi will remail 68% of times in between roi of -13% and 47%.

In addition, the nifty roi, as per the 2 sigma rule, will remail in between roi of -43% and 77% 95% of times.

Again, as per the 3 sigma rule, ROI will remail in between -73% and 107%, 99.7% times.

Finally, Roi can touch 1 sigma, 2 sigma, and 3 sigma at any time.

But sometime in the future, the roi must come back to the average value for sure.

So, it is very clear that if you find a -ve roi for the last one year in nifty, then that is a very good buying opportunity.

And you can invest aggressively if the ROI is around -13% to 30%.

Similar way, you need to wait for the roi to touch one sigma or two sigma on the right-hand side, and you should be able to sell immediately once it touches.

normal distribution curve

You can see a nifty 50-roi normal distibution curve in the above image.

In addition, the average is 17% and SD is 30%.

Now let’s see what will happen to nifty 50 if we apply this rule and do some asset allocation and rebalancing.

and we have already seen that Nifty gave 75 lakh wealth with one lakh investment 34 years ago.

Tactical Asset Allocation Using Empiric Rule…

Let’s assume that you will select two asset classes for these classes.

In addition, the two asset classes are nifty 50 and gold.

Here, in the above exel analysis for Nifty Roi using the empirical rule, I have tried several scenarios.

Like selling at 2 sigma SD and buying at sigma.

But these scenarios gave less return.

In addition, the reason for this is because roi will touch 2 sigma on both sides of the average rarely.

Most of the time, nifty roi in all these years touched 1 sigma on the left-hand side and went into an uptrend.

Moreover, I have assumed that you will invest in both assets, i.e., nifty 50 and gold.

In addition, I have assumed that nifty roi last year is greater than or equal to 30% roi.

Then, I have assumed that you will invest 60% in nifty and balance 40% in gold.

Similar way, if roi is not greater than or equal to 30% roi, you will invest 70% of 1 lakh in nifty and 30% of 1 lakh in gold.

You can see in the above Excel file that the wealth created using this tactical strategy is 80 lakh.

In addition, you can observe this 80 > 75 lakh accumulated in 100% nifty 50 strategy.

Moreover, you can see the average is 14.6% and the standard deviation is 20.3%.

And the CAGR is 13.8%.

Conclusion about this nifty roi analysis using empirical rule…

You can see in the above image that index volatility has gone down in tactical asset allocation.

In addition, this is due to the asset allocation that we took; the average ROI came down.

Moreover, you can see that the standard deviation in your tactical strategy came down to 21% from 30%.

And you can say that the volatility in our tactical strategy came down significantly.

Now, you can see the CAGR in both scenarios, 100% nifty and nifty and gold tactical asset allocation.

Here, the CAGR in nifty, gold tactical asset allocation is slightly higher.

As a result of that only, you are able to accumulate 5 lakh extra with the tactical allocation strategy.

However, you should remember, volatility always comes down with asset allocation.

volatility

You can see in the above image that the blue line is much smoother than the orange line.

So, the blue line is gold plus nifty investment has a lower volatility compared to 100% nifty 50 investment.

i.e., orange line in the above image.

But there is no guarantee of a higher ROI than a 100% nifty or 100% gold investment.

Again, you should remember that sometimes you may have to compromise for less than 100% equity or gold investment.

Finally, that means if Nifty gave 15% roi in a 5-year period with 100% strategy, your tactical strategy may give a 13% roi.

Again, if Nifty gave a 0% ROI in the last 5 years, your tactical portfolio of gold and Nifty may give some positive return in the same period.

While investing, volatility is one of the big risks that you have to face.

and when nifty corrects by 10%, nifty will give you a 11% ROI to recover your capital invested.

So, to protect your capital from such falls, you need to follow asset allocation.

Read about Nifty future prediction—the best way to do it.

Also read about Nifty 50 CAGR: How to Calculate for the Next 10 Years.?

And also read, Is it safe to invest in Nifty 50 now?

Also read about tactical asset allocation—all you need to know…

 

 

 

 

 

 

 

 

I

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share With Friends and Family