IDFC Mutual Fund has introduced a new variant of systematic transfer plan (STP), aimed at helping investors tide over market volatility.
IDFC was incorporated on 30 January 1997 with its registered office in Chennai and started operations on 9 June 1997. In 1998 the company registered with the Reserve Bank of India (RBI) as a non-banking financial company and in 1999 it formally became a Public Financial Institution.
The new strategy -- PE STP -- allows investors to make allocations to a fund depending on the price to earnings ratio (PE) of the stock market bellwether Sensex.
“This innovation from IDFC AMC 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,” Kalpen Parekh, Managing Director, Sales & Marketing at IDFC MF said in a statement.
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 new scheme, introduced by IDFC
Mutual Fund, 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.