P/ E Ratio Fund
A fund which invests in stocks based upon their P/E ratios. Thus when a stock is trading at a historically low P/E multiple, the fund will buy the stock, and when the P/E ratio is at the upper end of the band, the scheme will sell.
Concept Clarifier – P/ E Ratio
P/ E Ratio stands for Price Earnings Ratio. It is also known as Price Earnings multiple. This is a ratio of the current market price (CMP) of a share to its earning per share (EPS).
Thus if a company has issued 100 cr. shares and the profit after tax; i.e. the net profit of the company is Rs. 2000 cr., then the EPS for this company will be 2000/ 100 = Rs. 20.
If this company’s share’s CMP is Rs. 200, then the P/ E ratio will be 200/ 20 = 10x.
The unit of P/E Ratio is ‘times’. In the above example we say that the P/E Ratio is 10 times; i.e. the price (CMP) of the company’s share is 10 times its EPS.