WF: Reliance Mutual Fund has been a pioneer in launching innovative facilities like SIP Insure, debit card etc. What is the next level of innovation foreseen by RMF?

Himanshu: History states that there has been a constant evolution in investment avenues, right from traditional styles like Bank FD, PPF, and NSCs etc to direct equity investment. To look at a step further, Mutual Fund Industry has evolved in order to deliver enhanced returns of equity vis a vis diversification of risk, under professional management of funds. Within mutual fund category, investments styles like SIP (Systematic Investment Plan) and STP (Systematic Transfer Plan) were launched, so as to enable investors to inculcate a disciplined and long term investment habit along with the advantage of rupee cost averaging.

However, from 2008, market scenario is changing rapidly as ever due to major events & shocks and high volatility is prevailing in the financial markets.

RMF has always been a forerunner in empowering the investor with innovative products and facilities, with an aim to capitalize on the potential of different asset classes, much ahead of time. Today, in order to be ahead in the never-ending race and to capture the inherent volatility of financial markets combined with benefits of systematic & long term investment, RMF, took another logical & scientific step forward, & launched an intelligent way of investing - "Reliance SMART STEP".

WF: What is Reliance SMART STEP? What is unique about this facility?

Himanshu: Reliance SMART STEP is the special product feature which adds intelligence to disciplined, long term & systematic investment approach. It is an enhanced version of normal STP (Systematic Transfer Plan), which works on a simple concept of "when the stock market trades at lower levels, a higher number of units should be bought and on the other hand, when the stock market trades at higher levels, lower number of units should be bought". The objective of 'Reliance SMART STEP' is to provide long term capital growth by capturing inherent volatility of markets on basis of a scientific model.

RMF is the first fund house, to provide such a unique facility across all schemes. Reliance SMART STEP is a systematic offering linked to market levels, combined with twin benefits of stable return of debt & high yielding returns of equity.

WF: This new facility seems very relevant in today's volatile market conditions. Is it the market volatility that led you to create this new facility or is there any other aspect you kept in mind in designing this facility?

Himanshu: Volatility is the most important factor in equity markets due to its inherent nature. It is true that volatility has been at its peak during the previous two years, but it is not the standalone factor to create such a facility. Off-late we have seen investor confidence gradually developing back into equities and that's where this product STEPs in, giving them the calibrated exposure into equity along with stable return in the transferor scheme. We have endeavored to offer our investors with an intelligent, scientific and disciplined way of investing which includes systematic investment linked to market levels along with twin benefits of stable return of debt & high yielding return of equity.

WF: What is the basis of the scientific model? Please throw some light on the model.

Himanshu: Reliance SMART STEP facility is being designed with an endeavor to provide an intelligent way of investing to both short term and long term investors. In this plan, the interval of investment is pre-defined, but the amount of each installment would be determined on the basis of a scientific model, where in the average value of the "Bombay Stock Exchange Sensitivity Index" (BSE SENSEX), calculated on basis of historical values would be compared with the current value of BSE SENSEX.

The duration for BSE SENSEX average would be determined on the basis of tenure of investment selected by the investor. As and when the investment tenure would increase, the duration for BSE SENSEX average would increase in such a manner which would be able to capture the bull & bear phase along with rhythm of leading economic indicators. The longer the investment period, then the BSE SENSEX average would be taken for a long period so as to consolidate volatility and macro & micro economic factors in one cycle.

Thus, the average of BSE SENSEX readings would enable our scientific model to capture the inherent volatility and to preempt the trend of an emerging market, like India, so as to arrive at final amounts to be transferred from debt/liquid scheme to an equity scheme on monthly basis.

On the basis of the scientific model, if the current value is more than the average value, then lowest value from the plan selected would be transferred. If current value is less than the average value, then highest value from the plan selected would be transferred, otherwise middle value would be transferred.

WF: What are the tolerance levels that you will consider in deciding whether the Sensex is at or above or below the historical average?

Himanshu: As mentioned earlier, the average of BSE SENSEX is taken as the base upon which financial ratios, which are technically proven in Indian Financial Markets, are incorporated to determine the pre-defined high, medium and low BSE SENSEX average levels, which in turn would be compared with the current BSE SENSEX level.

WF: Do you have any back-testing data that compares returns under Reliance SMART STEP vs a normal STP in any of your equity funds - over the last 1 and 3 years?

Himanshu: The back testing has been done over different tenures and Reliance SMART STEP has given positive differential returns in comparison to Normal STP in range of 3% - 8% annualized returns.

WF: Why is the maximum installment pegged at a range of Rs. 15,000 - Rs. 30,000? How can an investor wanting to commit larger amounts utilize this innovative facility?

Himanshu: Reliance SMART STEP facility provides an investor with 4 plans, among which one plan has to be selected depending upon the range of amount to be invested every month. The 4 plans have been designed, keeping in mind the affordability of an investor. Plan A & B is designed for retail investors, whereas Plan C & D are for HNIs. Going forward, we would introduce more plans so to encourage investors ready to commit larger amounts.