Samco MF allows investors to time equity markets and invest in equities

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While announcing a new fund offer (NFO), the Samco Overnight Fund, Samco also unveiled a systematic transfer plan with a twist – the Samco Timer STP. The NFO will open on October 4.

Timer STP is used to systematically transfer fund from Samco Overnight Fund to Samco Flexi Cap Fund – a diversified equity fund. The amount of money to be transferred from overnight fund to equity fund will be determined by EMOSI (equity margin of safety index), an in-house tool developed by the fund house.

This index ranges from 1 to 200 and is computed by taking into account various macro-economic and technical parameters. The fund house plans to publish the EMOSI everyday on its website. The index is high when the markets are attractive. The other way round also holds good.

When the index indicates attractiveness of the market, the timer STP will allocate more to equities and when the markets are expensive, it will transfer a relatively less amount of money to equities.

Timer STP instalments will range between 0.01 times and 6 times the base instalment amount the investor has agreed to invest while signing for the timer STP, depending on how attractive the market is determined by the EMOSI.

How is Samco’s STP different?

Umeshkumar Mehta, CIO, Samco Asset Management, said: “With Timer STP, we are enabling an average investor to sail through the market cycles efficiently and avoid entering the markets at the wrong time.”

The fund house claims that the Timer STP can improve the returns of the investors, compared to what he would have earned in a traditional STP, wherein a fixed sum is transferred from a debt fund to an equity fund. This is achieved by allowing less than the base instalment when the markets are flying high at unattractive levels, and investing aggressively when the stocks are attractively valued.

Similar value-driven systematic investment plans (SIPs) are offered by fund houses such as ICICI Prudential Mutual Fund, HDFC and Kotak Mahindra. Some fintech companies into mutual fund distribution, such as FundsIndia, also offer such facilities to their clients.

Rupesh Bhansali, Head, Mutual Funds, GEPL Capital, says: “SIPs driven by valuations can be rewarding for long-term investors. These products work in an unemotional manner to take advantage of the opportunities that are otherwise difficult to capitalise for an average individual investor.”

Do flexible STPs work?

While such arrangements look interesting due to the possibility of generating excess returns over traditional SIPs, they are not perpetual winners.

“These value-focused systematic investments can work in range-bound volatile markets and have the potential to offer more than traditional SIPs. But if the markets keep trending up for a prolonged period of time (going up consistently), the amount invested would be low, compared to a traditional SIP, thus accumulating relatively lesser money compared to what you would in a traditional SIP. You have to start with a core asset allocation and traditional SIP. Value-based SIP or STP can be an additional strategy for your portfolio,” says Gautam Kalia, Head, Investment Solutions, Sharekhan.

Investors should also adjust to the mindset of investing more and more in falling markets. That’s hard to digest for many investors. Also, the selection of scheme matters a lot. If the underlying scheme does not do well, the portfolio returns may not be good even if you get the broad market timing right.

Samco MF launched its maiden equity mutual fund scheme, Samco Flexi Cap Fund, on February 4, 2022. The scheme has lost 4.9 percent since inception. The scheme invests in shares of Indian companies as well as in shares of companies listed overseas.