PRINCIPAL Mutual Fund recently introduced an open-ended scheme called Principal SMART Equity Fund. This scheme aims to invest based on the price-earnings ratio (P/E ratio) of the S&P CNX Nifty. The fund aims to generate long term capital appreciation with relatively lower volatility through systematic allocation of funds into equity and in debt or money market instruments for defensive purposes.
When the markets turn expensive in terms of the P/E ratio, the scheme will reduce its allocation to equities and move assets into debt and vice versa. For example, if the P/E ratio of Nifty quotes below 16, the fund will be fully invested into equities and as the ratio rises the money will move into debt instruments. If the P/E ratio for Nifty goes above 28, the fund will completely move into debt instruments.
The equity component will have more of stocks that fall in the largecap category. The debt component of the fund will be more into money market securities that are typically of short tenure. By employing a P/E based strategy, the fund aims to take asset calls in a more disciplined manner with little fund manager bias. This is expected to help the fund to buy more of equities when the market quotes at lower levels and sell more of equities when the market climbs in valuations terms. The investor will need an investment horizon to enable the strategy to work in his or her favour. Hence, no short-term traffic can be considered here.
The minimum investment to buy into this opportunity is 5,000. There is no entry load. The exit load is 2% if you decide to move out of the scheme before completing one year. It stands reduced to 1%, if you decide to move out before completing two years. If you remain invested for more than two years there will be no exit load. The investors are offered two options — growth and dividend. The fund can also be bought using the systematic investment plan. Crisil Balanced Fund Index is the benchmark for the scheme.
Why Invest:
For sustainable long term wealth creation using a disciplined approach.
Why Not to Invest:
The fund may underperform compared to equity funds in case of prolonged period of high valuations.
