PPFAS Mutual Fund: A success story in value investing

Here’s where PPLTEF differs. Its turnover ratio of 5.7 percent is the lowest among 180 diversified equity schemes in the market.

For years, PPFAS mutual fund has stubbornly refused to roll out new schemes just to gather assets, unless such offerings could help investors. “We have always believed that we want to stick to products, where we can add value to investors. This is also the reason why we have focused on equity, as we feel this is where our expertise lies,” says Rajeev Thakkar, chief investment officer, PPFAS MF.

Thakkar believes that a single equity fund that can do multiple things serves the purpose. “Despite the intense competition in the MF industry to gather assets, PPFAS MF has always backed itself and steered clear of this race,” says the chief executive officer of a rival fund house, requesting anonymity.

The fund house follows the principles of value-investing, where it looks for good-quality companies available at reasonable valuations. For example, 2-3 years back, when the fund house made investments in pharma and technology companies, it faced investor scrutiny. However, such early investments paid off as both these sectors have done well in 2020 due to COVID-19. “Sometimes, good-quality companies, if they are out of favour, give good entry points,” Thakkar says.

Taking the long road

PPFAS mutual fund started off as a stock broking house in early 1990s. Parag Parikh had founded it. He passed away in 2015.

In 1992, the Rs 4,000-crore Harshad Mehta scam put many brokers out of business. But Parag Parikh’s broking house survived. After economic liberalisation and the entry of foreign institutional investors (FIIs) in the late 90s, there was a growing interest in quick money-making stock ideas from institutional clients.

Not giving in to these demands, Parag Parikh’s broking firm continued recommending long-term investment ideas, even though this approach cost the firm some of its clients. To protect clients and the business from the risk of bad deliveries or fake shares that had entered the markets following the Harshad Mehta scam, Parikh’s broking firm, in 1996, decided not to undertake any institutional business till the issue was sorted out. This meant that the firm didn’t have any income for eight months. But, the firm’s stand gave it a strong reputation as a responsible organisation.

There is another practice that PPFAS MF has continued from the group’s earlier days. When the group started its portfolio management services (PMS), it used to directly communicate with the clients. The fund house holds annual unitholders’ meet since it started its operations in 2013. Its flagship scheme now has close to 400,000 unitholders.

Retail investors of the fund house attend these meetings and get a chance to ask questions to Rajeev and the fund management team. Thakkar says the fund house’s focus on investing with a long-term view is down to being owned by a family that understands equity investing. “There is no pressure to run after short-term trends. We think long-term. PPFAS MF is a family-owned business, where the owners – earlier Parag Bhai and now Neil (Parag’s elder son) – understand equity investing. They realise that there are market cycles,” Thakkar says.

He adds that the fund house isn’t fixated over the quarterly performance of the schemes; the focus is on the investment process.

Why just three schemes?

After managing just one scheme for over five years, PPFAS rolled out a liquid fund in 2018, to help its investors enrol for systematic transfer plans (STPs) into its equity fund. A tax-saving fund was started in July 2019.

PPFAS is now considering the idea of rolling out a product on the debt side. “This is still in the preliminary stages. We would want to launch a differentiated product for investors on the debt side, which they can use for regular cash flows,” Thakkar says.

PPLTEF invests around 25-30 percent in international equities. But PPFAS Tax Saver Fund is just a replication of PPLTEF’s domestic equity portfolio.

Amol Joshi, founder of Plan Rupee Investment Services says that “the focus on international equity exposure has also helped the fund’s performance.” In the last three years, the fund has given 13.8 percent returns, the highest in the multi-cap category, as against the benchmark’s figure of 6.3 percent, shows data from Value Research.

“The idea behind making investments in foreign markets is to give investors exposure to businesses that they otherwise cannot take through domestic markets,” says Thakkar.

But as a policy, the fund house only invests in Western Europe, North America and Developed Asia. Thakkar says the fund house wants to invest in only those countries where capitalism is deep-rooted and there is a good track-record of minority shareholder-friendly actions. PPFAS MF doesn’t invest in Chinese companies and Thakkar says their funds may miss out on some Chinese companies that may do very well in future years, but it would want to continue to stick to the policy.

While Raunak Onkar is the fund manager who takes care of the international exposure of the scheme, the team of research analysts at PPFAS MF tracks sectors in India and abroad.

Apart from Thakkar and Onkar, Raj Mehta is the third fund manager at PPFAS MF.

Ravi Kumar TV, founder of Gaining Ground Investment Services, feels that the Long Term Equity Fund should be part of every investor’s portfolio, as it also gives geographical diversification.