Parag Parikh, chief executive officer, PPFAS Mutual Fund, is a man with a mission of making his equity fund “the scheme to invest in” in the next five years. His asset management company has just one equity scheme and plans to keep it that way for a while. Firstbiz spoke to him about his money management strategy, the competition (or the lack of it) from other AMCs and lot more. Edited excerpts:
Last year your asset management company launched its first scheme. How has the journey been so far?
It has been challenging. It’s been only 9-10 months since, we’ve launched. The net asset value (NAV) has moved from Rs 10 to Rs 11.25 (on 28 February). I don’t think I will celebrate for that. We are long-term investors, and we would like to ask our investors to see our performance after 3-5 years. We have certain processes in place, and we make our investments based on such processes, and the chances of us going wrong in the long run are very minimal.
You being a late entrant and small, how would you compete against the giants of the industry who have been here since inception? Don't you think that your competitors are stronger?
I don't believe that we have any competition. I would call them competitors if I was doing the same things as they were. Our business design is very different. We are into fund management and they are into marketing. We have only one scheme and they have multiple schemes. We look at absolute returns whereas they compete with each other on relative returns. Our investment philosophy is long term value investing approach; they claim to have expertise in all investing styles. We buy businesses for the long term; they buy stocks that are expected to go up. We invest in our own fund and have our skin in the game, they don't do that. We are not in the race for assets under management, for them that is the most important goal. We don't sell, we make people buy our fund; they sell their fund. We have relationship managers; they have sales teams. For us this is a profession; for them it is a business. We embrace the idea of stewardship; they believe in marketing and AUM growth. Now do you believe that we have no competition?
Your views on new Sebi norms on net worth for MFs. The minimum requirement has been increased to Rs 50 crore.
A lot of discussions have take place in the last two years, that the net worth should not increased and should be decreased, on the contrary. The idea behind this is that money management is basically a profession, and not a business. If the minimum requirement was decreased, it would have been like saying that let more professionals come in this space. We in the MF industry need qualitative analysis of people coming in rather than quantitative in the form of money. But now when you increase the net worth criterion, you are forcing people to increase inefficient allocation of capital. This profession really does not require that much amount of money. We are in an internet era. The regulator feels we should have more branches. But, I doubt whether increasing the number of branches can solve problems. Regulator wants serious players. Are serious players only those with deep pockets? On the contrary, seriousness is more with people who don’t have that kind of money to pump in. Today, we’ve given licences to corporates. For them, MF is one of the businesses. My idea is that if minimum requirement amount is decreased, more professionals will come. Let there be competition. That should be the vision of those who are regulating the MF industry.
What percent of the fund you manage has been invested in international securities? What are your views on US tapering and rupee-dollar movement? Do you think things have stabilised for now?
These macro factors don’t really play an important role in fund management. These are temporary factors. But today as far as our Long Term Value Fund is concerned, we have a process in place, we invest into businesses. I don’t know which stock will go up tomorrow. So we buy businesses which are run, firstly by credible management. Businesses which have a firm moat around them in the form of a distribution network or patents or brands or businesses which require least amount of capital, business which have least or no debt at all. Businesses, which have pricing power. When all these things are there together, then we look for the right value. Are these businesses available for a good value? We follow that strictly. We are not concerned with the noise of the markets. We wanted geographical diversification because in the era of globalisation, we want companies that are global. So 35 percent we have kept in foreign equity and 65 percent in Indian markets. We need to invest 65 percent to get tax benefits. This way we have made our funds the most tax efficient.
What advice would you give lay investors today?
Investors have to follow the law of the farm: You cannot sow something today and reap tomorrow. A seed which is sown today, has to go through different seasons, ups and downs, before it becomes a big tree. Similar is the case with investing. If you think you will invest today and profit tomorrow, it actually does not happen, it only enriches your broker. This market is fantastic for those investors who want to be invested in the market over the long-term period of time. The problems with Indians is that they will invest in fixed deposits for five years, 10 years, they will buy PPF for long term, they will put money in insurance, but when it comes to equities markets they see short term. The issue is that we don’t have right professional who are advising this. And, we are all in the instant gratification phase, but in the markets it does not happen that way.
So do you spot value based on sectors?
For us we are not concerned with the sector. If the company is good and all its credentials are in place, we see at what price we are getting it. With sectors, you always make mistakes. When you buy into a fancy sector, you pay a fancy price, and when the fancy ends, you have a fancy loss. All this is for people who want to gamble in the market, people who want to time the market. Ours is a bottom up approach.
The original article could be seen here.