The Mutual Fund Show: Is It Time To Book Profit In Small-Cap Funds?

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Kshitiz, about this booster STP thing that I think I ICICI has come out with, can you tell us what this is about? Is that a good strategy, and throw some light on it and what kind of investors is it suitable for?

KSHITIZ MAHAJAN: This show is watched by a lot of people, so just to make things easy for everyone. There is a different platform through which you can invest in equity in a staggered manner one is a systematic investment plan, the money gets debited on a defined date from your bank, but not a bank holiday on day after that. Every month, let’s say 5000 rupees keeps going in a scheme that you define. The other way is a systematic transfer plan, which is called STP, this is not a very long-ish process which you go for. It can be for six months, 10 months or 12 months, let’s say maybe for a couple of years, you put money in any of the debt schemes. Let’s say liquid fund or ultra-short term or whatever fund scheme you define and on a monthly basis, on a given date money gets switched from one liquid fund to the given equity scheme. It can happen to a debt scheme also. The facilities is for across the street. So, this is called STP. Now, normally if, let’s say I have put in Rs 12 lakh , and I want to divide my allocation in these levels in the next 12 months, I will say one lakh each depending on and then there will be some surplus money because of the liquid money acquisition which will remain and we can switch later on but this is a very beautiful concept which ICICI has come up with. It’s called booster SIP. It works on a model, which is called equity valuation index which is on the basis of your price-to-earnings, price-to-book value, your G-sec*price earning and market cap to GDP. There are four parameters on which it works, and all these parameters define a range at which the equity valuation is, and it varies between 0.1 to 5. Let’s take for example, if one lakh every month will go, if you want to put this money right now, the valuation metric will say, just put Rs 10,000, not Rs 1 lakh because markets are very high valuations. Now, the same thing but if you go back to March 2020 and they do this on every 28th, they will say put 2,80,000 on March 28 because the valuations were very cheap and because March 24 was the day when the markets were low, and then it recovered a bit. So, then the valuation was this. Now rather than just doing this in a very mechanical way that every month on 28, Rs 1 lakh will go but this allows customers or allows any investor to encash on the markets given market values. So, if I come to you, you are very knowledgeable or you understand equity well, but let’s say if you are not a part of this industry, I’ll come to you and say, the market is down, we can switch the money now. At 7.400 levels how many people were actually participating in the equity market? You will not do but if there is a process which is set, because there is no emotion in that, there is a valuation matrix, automatically, rather than Rs 1 lakh your money gets deployed at 7,700 or 7,800 level of Nifty, Rs 2,80,000. This is the best thing where emotion doesn’t play a role and automatically depending on the value metrics, your money keeps on going in our equity portfolio. This is about how it works and I think it’s a beautiful concept which ICICI has come up with. I would urge other AMCs to start with this, they can’t do this but it’s actually a very good concept.

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