Parag Parikh Mutual Fund All Set To Launch Its Second Equity Fund   Jun 07, 2019


(Image source: Image by Jonathan Rolande from Pixabay)

It has been reported that PPFAS Mutual Fund has received SEBI's nod and is on a verge of launching a tax saving fund, Parag Parikh Tax Saver Fund. It is interesting to note that, since its inception in 2013 this small fund house has only two schemes in its product basket.

Intrigued, I delved deeper to know more about this Mutual Fund industry player who aims to help clients achieve their long-term financial goals through prudent fund management. PPFAS Asset Management (PPFAS AMC) is promoted by Parag Parikh Financial Advisory Services Pvt. Ltd. (PPFAS Ltd).

The promoter is a leading Investment Advisory Firm incorporated in 1992 with a reputation built on performance and is also amongst India's earliest SEBI Registered Portfolio Management Service (PMS) providers.

PPFAS Ltd has two decades of rich and varied experience, a thorough knowledge of the markets, proficiency in risk management and innovative, focused research, and offer advice on investing in the equity, fixed income markets, and mutual funds. Their clientele includes Financial Institutions, Mutual Funds, Foreign Institutional Investors, Banks, Corporates and Individual Investors.

Key Personnel:

Mr Neil Parag Parikh is the Chairman and Chief Executive Officer of PPFAS Asset Management Private Limited. At PPFAS Mutual Fund, he handles the key client relationships and is entrusted with fulfilling strategic responsibilities. Just like his late father, Mr Parag Parikh (founder of PPFAS Mutual Fund), he believes in Value-investing and is a strong advocate of applying behavioural finance fundamentals in investing.

Mr Neil Parikh has been a part of the Capital Market for over a decade with experience across wealth management, research, Institutional desk, marketing, operations, broking and key client management to name a few.

He holds a Masters in Business Administration from IESE Business School, Spain and a BA in Economics from University of North Carolina at Chapel Hill.  Mr Parikh worked as an Intern at JM Morgan Stanley in 2003. After that, he has been a part of Parag Parikh Financial Advisory Services Pvt. Ltd. since July 2004.

Mr P. A. Balasubramanian is the Chairman of PPFAS Trustee Company Pvt Ltd and an Independent Director. His role is to ensure that the applicable laws and regulations are complied with, and the interest of unitholders is always protected. He brings on board his vast experience of working with Insurance regulator (IRDA), one of the biggest financial institution (LIC) and the office of EPFO.

The Fund Management Team of PPFAS Mutual Fund:

Mr Rajeev Thakkar is the Chief Investment Officer & Equity Fund Manager at PPFAS Mutual Fund. He holds a bachelor's degree in Commerce from University of Mumbai, is a Chartered Accountant, Cost Accountant and CFA Charterholder. He possesses relevant experience of over two decades in various segments of the Capital Markets such as investment banking, corporate finance, securities broking, and managing clients' investments in equities. He joined the sponsor of PPFAS AMC in 2001. His passion for researching and analysing the fundamentals of companies that are heavily influenced by Warren Buffett and Charlie Munger's approach and belief of Value-investing is evident.

Mr Raunak Onkar is the Head of Research and manages the overseas investment of the flag ship scheme Parag Parikh Long Term Equity Fund since its inception at the fund house. He has done his MMS in Finance from University of Mumbai and holds a BSc. IT degree from University of Mumbai. He has over 10 years of experience in the capital market and has been working with the company as an Associate Fund Manager.

Mr Raj Mehta is the Debt Fund Manager at the at PPFAS Mutual Fund. He is a Commerce graduate from University of Mumbai, a fellow member of Institute of Chartered Accountants of India (ICAI) and is a CFA Charter Holder. He is also a certificate holder of FIMMDA-NSE Debt Market module issued by NCFM. Mr Mehta has over 6 years of experience in investment research. He started his career with PPFAS Asset Management Pvt Ltd as an intern in 2012 and joined the company as a Research Analyst in 2013.

Investment philosophy and the Journey so far...

"You cannot sow something today and reap tomorrow! A seed has to go through the various seasons before it turns into a fully-grown tree. So is the case with Investing." - Late Mr Parag Parikh, founder of PPFAS Mutual Fund.

This is core philosophy that fund house follows and believes that investing should not be a complicated process. Wealth creation takes its own time and hastening the process is counterproductive.

Hence the fund house strives for simplicity in scheme design, investing process, and operations. It stresses more on the investing process and uses time-tested principles of value investing -- which consists of age-old metrics like cash flow, low debt, etc. while constructing the portfolio.

Another point to note is that, the fund house believes that the interests of the promoters and employees of PPFAS Mutual Fund should be aligned with those of the scheme's investors.  At PPFAS Mutual Fund, the key stakeholders in the Fund have invested a substantial portion of their equity investments in Parag Parikh Long Term Equity Fund inspired by The Hammurabi Code.

Since the inception of the fund house, it had only one equity Scheme, Parag Parikh Long Term Equity Fund (erstwhile Parag Parikh Long Term Value fund), because it was of the view that too many choices lead to decision paralysis and confuses investors to have a cluttered or 'flavour of the month' kind of offering.

Instead this scheme was intended to be the only general value equity scheme that aims to take advantage of investment opportunities available in this scheme itself across market cap and sector.

In addition to the single equity scheme, the fund house also launched Parag Parikh Liquid Fund to meet cash management needs. The objective was to manage liquidity and not generate the 'highest returns'. Given this stance, the bulk of investments in the liquid fund are in overnight money in CBLO or in Treasury Bills.

Table 1: Parag Parikh Mutual Funds' Performance

Scheme Name Absolute Returns (%) CAGR (%)
6 Months 9 Months 1 Year 3 Years 5 Years SINCE INCEPTION
Category: Liquid
Parag Parikh Liquid Fund 3.75 5.71 7.74 - - 6.48
Crisil Liquid Fund Index- Benchmark 3.14 4.83 6.48 7.71
Category: Market Cap Fund
Parag Parikh Long Term Equity Fund 7.05 -1.64 6.73 14.12 13.84 17.14
NIFTY 500 - TRI- Benchmark 9.15 0.60 8.40 14.58 12.02 14.25
Data as on June 4, 2019
(Source ACE MF)

From the table it is evident that, both the funds did manage to outperform the respective benchmark indices. But to invest in Parag Parikh Long Term Equity Fund one needs to remain invested for at least 5 years or more.

Graph 1: Average AUM (Cr.) growth since Inception

stragicy
Data as on June 4, 2019
(Source ACE MF)

Besides, the AUM of the fund house stands at Rs 1805.2 crore for March 2019 and has grown by 14.90% from Rs 113.5 crore since June-2013. The portfolio AUM stood at 2068.6 Cr

Graph 2: Last 2 Years Quarterly Growth of Portfolio AUM (Cr.)

stragicy
Data as on June 4, 2019
(Source ACE MF)

While speaking to Moneycontrol, Mr Thakker mentioned, "To be fair, the fund house has stuck to its word so far on not launching a fund that resembles its existing one. In the interim, it launched a liquid fund to help investors start a systematic transfer plan. This is a facility that allows investors to invest in first a liquid fund, and then, systematically transfer a fixed sum every month into an equity fund within the same fund house"

Future plans...

Currently, Parag Parikh Mutual Fund is preparing to launch Parag Parikh Tax Saver Fund (PPTSF) by the first week of July as it has received approval from the Securities and Exchange Board of India (SEBI) to launch its second equity scheme in six years.

As reported by Moneycontrol on May 29, 2019, "There wasn't much scale in the initial years when we had launched our first fund. Most of our investors in our first equity fund had come to us from our own portfolio management services scheme, which we had shut down when we entered the mutual fund industry", says Thakkar.

Furthermore, it was reported that, "PPFAS AMC too will follow the same strategy, which is a similar strategy between its sole equity fund and its tax-saving fund. There will one difference though, between PPLTEF and PPTSF. The former has consistently invested around 20 percent in international equities. But according to the Central Board of Direct Taxes, an ELSS cannot invest in international equities; it must invest at least 80 percent in Indian equities and the rest in debt and money market instruments."

Thakkar said that aside from international equities, the portfolios of both the schemes will look the same. Both funds will continue to remain as multi-cap funds. In simple words, both will invest across scrips and sectors."

PersonalFN is of the view that, there already exist several schemes of the same category in the market and any tax saving scheme has a mandatory lock-in period. Hence, this calls for more care and caution when you add ELSS or tax saving funds to your portfolio.

When you select ELSS, give importance to the ones that have a consistent performance track record with a fund house that follows robust investment processes & systems.  Thus, it would be sensible to first look for ELSS with a consistent performance track record, besides qualitative aspects like fund house pedigree, and investment process, quality of the fund management team among others is imperative.

[Read: Which Are The Best ELSSs (Tax Saving Funds) For 2019?]

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Author: Aditi Murkute



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