'We Want To Keep It Simple And Not Confuse Investors'

Neil Parikh, Chairman & CEO, PPFAS Asset Management talks about the rationale behind their unique strategy of running just one fund, on why his family’s personal investments are made in this fund, on the focal areas of his business going forward, and on his outlook for Indian equities over the next five years.

PPFAS Mutual Fund has followed a very unique and focused strategy of having just one scheme - PPFAS Long Term Value Fund. Could you tell us a bit about the thought process behind this approach? Do you plan to launch any NFO's in the near future?
To put it simply, we wanted to keep it simple and not confuse the investors. Investing is simple, but the industry has woven a web of complexity to confuse the investor. We wanted to differentiate ourselves from the others by having one scheme that can take advantage of all investment opportunities across sectors, across market caps and across geography. As the scheme name suggests (Long Term Value Fund), wherever we find value, we can invest within this one scheme. A lot of thought has been given while designing the structure of this scheme. We saw fund houses with multiple schemes with different names (some just capturing the current fads and fancies prevalent) but having 60-70% similar portfolios. At any given time a couple of the schemes will be doing well and those could be easily marketed to the public. And after a few months 2 other schemes will be doing well and those could be marketed and easily sold. Having just one scheme, we are focused on the performance of this one scheme and there is no hiding behind performances of other schemes. We have a lot of confidence and conviction with the way we have designed and operate this scheme. We can invest in everything within this one scheme- Indian equities, foreign equities, buybacks, arbitrage, and debt. This is truly a Go-Anywhere value fund. No need for us to launch any other equity scheme. We might think of an ELSS Fund later on when we reach a critical mass.

It is believed that close to 12% of your personal and family assets are invested in this fund too. Could you tell us a bit about what makes you confident enough about the fund's future performance to have your own skin in the game?
Not only me and my family, but the CIO, most of the employees, directors, trustees and the sponsor company have all invested in this scheme. I cannot tell someone to invest in my scheme if I have not invested a sizeable portion. We go a step ahead and disclose the holdings of key employees on a monthly basis on our website. Like I mentioned above, the differentiated design of the scheme and the investment philosophy and values that we follow make me extremely confident that in years to come this scheme will continue to be a consistent performer. Our company has been managing money since 1996 (through our PMS) so we have more than 20 years experience in this profession. We have not wavered from our principles and values and over time we have seen the fruits of our labour.

Having skin in the game instills confidence in investors and aligns our interests. As everyone from the organization has invested their own hard earned money, internal risk mechanisms are automatically taken care of. For us, the main motivation is for the fund to perform really well rather than the management fees we earn. This ensures no mis-selling takes place.

Exactly which space are you competing in? Is your focus more on retail investors or high net worth individuals, and does your AMC encourage SIP's or lump sum investments?
Our focus is to reach out to likeminded investors. They can be HNI's or retail. For us the quality of the money matters, rather than the quantity. We make sure we communicate to clients/prospects about the design, structure and investment philosophy of the fund. In all our communications we make it clear that if your investment horizon is less than 5 years then this scheme will not be suitable for you. Only after everything is explained and if both our expectations are aligned, does the on boarding process takes place.

SIP investments are definitely encouraged for retail/ salaried investors. For HNI's it can be a mix of lump sum and SIP, depending on how their wealth is generated.

How critical is distributor support to your business growth in the next 3-5 years? Is your strategy going to be more channel development oriented, or would you rather garner a larger share of assets in your direct plans?
Distributor support is going to be important for us going forward. We would like to reach more people and distributors can really help us out on that front. We transitioned from a PMS to a MF and as such we had decent AUM that flowed into the direct plan. It was our conscious decision to concentrate on fund performance and get our internal processes in order before we approached distributors. The feedback we got initially was that we did not have a 3 year record, we were a new fund house and our strategy of investing upto 35% in foreign stocks was very different from the existing funds. Thus they wanted to wait and see how these things played out. Ten months back our ratio of direct plan to distributor plan was 98 to 2. Today it is 92 to 8. So you see the distributors have started getting active and incremental flows have been more or less equal in the two plans. The distributors are starting to notice the novelty of our fund and how it can help their clients in their asset allocation. Eventually we would like the ratio to be 50:50. Both channels are important.

From an asset allocation perspective, how much should an investor be invested into equities at this stage? Do you foresee a broad scale bull run from this point on, or is this a stock picker's market?
I am a big believer in equities as equities are the best hedge against inflation. As such if anyone has an investment horizon of more than 5 years they should be invested in equities. Anything less than that, they should not be invested in equities.

Currently, the markets are neither very cheap nor are we in a bubble like situation. One needs to be stock specific and not follow the herd blindly. In the near term markets are likely to be volatile which can provide good opportunities. Investing in a staggered manner will help going forward. We are extremely confident from a 5 to 10 year perspective. There is money to be made if one can ride out the volatility and have patience. Buying quality companies at decent valuations will help in long- term wealth creation.

Lastly, could you share with BW Businessworld some of PPFAS Mutual Fund's goals and targets with respect to AUM, unique number of investors, Tier 2 city penetration or anything else?
Having targets in the fund management industry is actually detrimental as it leads to misselling of products. So we do not set any targets for our employees as I do not want them to go out and sell our product to someone who does not require it. The goal is to communicate and educate people about our fund. Only after they understand our product and their own needs, do we onboard them. So basically we want them to buy our product, instead of us selling it to them.

But SEBI has set us a target to reach 50 crore networth by May 2017. We will be reaching that mark by December 2016. I am happy to say we will get there by the organic route from internal accruals and the promoters pumping some capital. Once we are comfortably above that mark, it will provide us with more flexibility to spend on customer acquisition and the distribution channel.