Letter from Parag Parikh
The Offer Document by us as per the statutory format is quite detailed and informative. We urge you to read and understand the same. The points below are intended to highlight some of the principles and the processes of this scheme which we think are important for a prospective investor to keep in mind.
Why Long Term?
Investing is putting money to work and is governed by the universal law of nature: you cannot sow something today and reap tomorrow. A seed sown, has to go through various seasons before it grows in to a tree. So is the case with investments. Equity investing is akin to partnering in a business and businesses have their ups and downs. True benefits accrue to those who have the conviction and the patience to ride through the market turbulences.
There are no Shortcuts
We are in an era of instant gratification. We want everything fast, here and now. The stock markets do offer such delusions by way of trading, derivatives, etc which give instant profits. We do not believe in this school of thought and we would humbly admit that we do not possess the skill or have the ability to time the markets and trade to make short term gains. This scheme is not suitable for short term investors.
Is Long Term Investing difficult?
It may seem difficult but it is not so. Take the case of a young person starting his career at the age of 25. Assuming he retires at 65 he has 40 years where he can save and invest. Indians would invest in long term investments like Public Provident Fund (PPF), life insurance policies and gold over many years. But when it comes to equities they think short term. So it is not that people don't believe in long term investing but problem is the mindset towards equities.
We look at equity ownership as buying a business. Hence the investment process considers factors like management quality, industry/sector characteristics, financial leverage and risk, intangible assets,competitive advantage, pricing power and above all attractive valuations.
Application of Behavioral Finance: The Missing Link
This is where most investors lose out. They fall prey to their own and sometimes others’ mistakes due to the use of emotions in financial decision-making. This concept is known as behavioral finance. In other words the study of behavioral finance is the study of how people in general and investors in particular make common errors in their financial decision making due to their emotions. It is the study of psychology and finance. Behavioral Finance and how it affects markets is the key to a successful investment strategy. Wearing the cloak of patience, eschewing greed and conquering fear, form the basis of these strategies. We evaluate companies on their intrinsic strengths and long term potential but use the behavioral traits of the market to identify any mis-pricing in their stocks.
Too many choices lead to decision paralysis and confuse investors. Hence this scheme is intended to be the only general value equity scheme by our fund. We do not believe in multiple schemes and will aim to take advantage of investment opportunities available in this scheme itself rather than float multiple schemes.
Alignment of Interest and Disclosure
We firmly believe that the interests of the promoters and employees associated with the running of the fund should be aligned with those of the investors of the scheme. Our senior management team including myself would be co-investors with the outside investors in the scheme. All other employees are also encouraged to do so. PPFAS Mutual Fund will be voluntarily disclosing the investment details of the Sponsor, Asset Management Company and the Key Employees of the mutual fund on its website for outside investors to monitor. This will include details of additional investments made in the the scheme and redemptions made.
We urge you to consider the suitability of our scheme with your financial needs, goals, risk appetite and your patience before investing.
Founder, PPFAS Mutual Fund