IDFC AMC launched PE systematic transfer plan

MUMBAI: IDFC AMC, has introduced a new variant of doing the systematic transfer plan (STP). The new strategy called the ‘PE STP’ will allow investors to make allocations to a fund depending on the PE (Price to Earnings ratio) of the stock market bellwether S&P BSE Sensex.

Kalpen Parekh, Managing Director, Sales & Marketing said, “This allows investors to make the best of stock market movements. The PE ratio is a well accepted indicator of valuation, and through this simple yet effective strategy, investors can benefit from potentially better returns with higher allocations when markets are cheap, and lower allocations when markets are relatively expensive.”

In a traditional STP, a pre-fixed amount is transferred from one scheme (called source scheme) to another scheme (called destination scheme) on a pre-determined day. Usually the source scheme is a debt scheme and destination scheme is an equity oriented scheme. This provides the investor with the benefit of cost averaging.

The PE STP introduced by IDFC AMC does not have a pre-fixed instalment amount. The instalment amount can go up to five times the original instalment during times when the PE ratio reduces, making valuations more attractive.

Following its “traffic light” methodology, IDFC AMC will allocate 1x of the instalment amount if the market is in an expensive or ‘red’ zone (market PE is more than 19). If the market is in the yellow zone (PE is between 16 and 19), the strategy will allocate 2x of the instalment. When PE is in the ‘green’ zone (below 16), the strategy will allocate 5x of the amount. As is evident from historical data, chances of making higher returns go up when investments are made in the green and yellow zones.