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Principal Plans a New Fund

An open-ended equity scheme moving between equity and debt based on market valuations

Principal Mutual Fund is all set to launch its Principal Smart Equity Fund, an open-ended equity scheme that will invest in equity or debt instruments depending on current market valuations. This way, the fund limit’s the fund manager’s role by automatically deciding on equity exposure based on pre-redefined PE (price to earnings) ratio of the NSE Nifty.

As per the fund’s mandate, the equity component of the portfolio would be 100 per cent for a PE multiple of up to 16. Subsequently, it will drop to zero and the scheme would be fully invested in debt once the weighted average PE crosses 28. Says Sudipto Roy, business head, Principal Mutual Fund; “We have seen that once the markets cross the PE of 26, it usually witnesses sharp corrections. Based on this observation, we have defined different levels of PE ratio to correspond to the equity exposure of the fund.”

The scheme is open for subscription from 26 November, 2010 to 10 December, 2010 with the equity component of the portfolio in large-cap stocks and the debt portion in money market securities and liquid schemes of Principal Mutual Fund. The fund levies an exit loads on redemptions within two years. Usually, equity funds charge an exit load only on withdrawals within the first year. The scheme will charge an exit load of 2 per cent for redemptions within a year and 1 per cent for redemptions between one and two years. “Our objective is to encourage investors to stay in the fund for a long time for real chance of wealth creation.”