The Hindu Business Line : LIC MF plans P/E ratio-based fund

LIC Mutual Fund is swaying to a different tune - price-earning ratios of companies. It has lined up a fund for allocating chiefly to companies where P/E ratios are less than that of the Sensex or the Nifty at the time of investing.

The proposed LIC MF P/E Fund will try to generate capital appreciation over the medium to long term. Selections will be made through the stock exchange where a particular scrip meets the fundamental condition for investment. P/E ratios will be determined based on the latest closing prices and the EPS figures pertaining to the last annual results.

The fund, which will require an entry load of two per cent for investments less than or equal to Rs 3 crore, will normally allocate at least 65 per cent to equities or equity-related instruments, including derivatives of companies where P/E ratio is less than that of the index at the time of making the investment. Up to 35 per cent of the assets may also be put in stocks that do not satisfy the basic criterion - that is, in cases where P/E is more than that of the Sensex or Nifty. Also, a maximum 15 per cent may be invested in fixed-rate debt or money market instruments, the offer document filed with SEBI has stated.

For calculating P/Es, prices will be taken as the last available closing rates, LIC MF has specifically mentioned, adding that EPS will not be calculated based on quarterly results as such results may show variations because of the cyclical nature of the stocks involved.

"P/E ratio indicates how much an investor is willing to pay for Re 1 earning of a company. High P/E ratio indicates that investors are expecting the earnings to go up substantially, failing which the stock prices may fall. Similarly, low P/E ratio means investors are not very positive about the future growth of the company," the offer document has maintained.

Incidentally, it is also clarified that these are not the only reasons for a company's P/E to be high or low; this ratio should not be considered in isolation for making investment decision. Investments will be generally done in sectors bearing a positive outlook and a good growth potential over the long-term.

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
JRG Securities opens new branch at Peroorkada

LIC MF plans P/E ratio-based fund

Tata Equity P/E Fund runs diversified portfolio

Bear run arrested

Glenmark Pharma: A healthy guidance

Pantaloon strengthens on new biz plans

Bharti Tele-ventures: Room for growth

Outlook positive for Century Textiles, negative for Cipla

Technology, oil majors score gains