We began our mutual fund operations on three foundational pillars: Integrity in our actions, Transparency in our communications, and Discipline in our investing approach. I am proud of the fact that we did not compromise on our values, principles & fiduciary responsibilities, nor did we blindly chase the herd or the current fads, continued to stick to our convictions and most importantly were able to ‘walk the talk’. Overall, we are quite satisfied with the way things have gone. 10 years is a small milestone in what we hope is a very long journey. Parag Parikh, the founder of the fund house, was a prominent figure in the stock market, committed value investor and proponent of behavioral finance. He also had specific ideas how his fund house would distinguish itself from others. Are you satisfied you fulfilled the promises?
Yes, it was important to not deviate from our core values and philosophy. It was crucial to have continuity and be consistent in our approach. Transparent communication through our annual unitholders meets went a long way in strengthening that trust. Our founder had set us up with a strong foundation and a clear path ahead, which would help distinguish us from our peers. I am happy we stayed true to the plan.
You had to step in at a critical time for the fund house following the death of your father. Most mutual fund participants would say you made the transition effortlessly. What are your thoughts on the industry and challenges you have faced in these years since you assumed charge? How was your personal journey?
I had to take over in very sudden and tragic circumstances. Naturally, there were obstacles, especially that of self-doubt as I had to step into the massive shoes of our founder. The focus was to embrace the role and make sure we do not deviate from the road that was laid down for us. For the couple of years since our founder’s unfortunate demise, our attention was all about survival. We needed to regain the trust of our investors and show them that we are consistent in our approach. Business continuity was important. Communication had to be transparent and top-notch. If we could do these consistently and have decent investment performance, then over time we thought we could see some growth.
All this was only possible with the amazing team and colleagues at PPFAS. The hallmark of a good team is how they stand and support each other in tough times. I am just glad to be a small part of this wonderful team.
PPFAS mutual fund made some important decisions at the beginning. The PMS money was transferred to the fund. Also, every key management person invested in the scheme, before it became the norm. You also told investors not to invest if they are looking for quick bucks. Do you think such steps helped the fund house to cement its reputation?
These steps helped build trust. In the end, the profession of money management is nothing but earning the trust and goodwill of your investors. It is a fiduciary responsibility where one must act and do what is in the best interest of their clients. To our mind, we were just doing our duty and thought this would appeal to some people, from our experience of running a PMS and being a third-party distributors to mutual funds.
But these steps could have easily backfired- especially the way they communicated initially. It tried everything to discourage investors or distributors looking to make quick gains. How do you see these things while looking back now?
Our goal was not to please everyone. We wanted to build a community of like-minded investors and distributors who believe in what we are doing, stick with us for the long haul and trust us to make the right decisions. The realization that you cannot please everyone and there is no point attempting to do that, has helped us a great deal to streamline our energies to those that matter.
Another important distinguishing aspect is the absence of a plethora of schemes from every possible category. The fund house only manages four schemes, compared to countless schemes for many leading fund houses. Are you happy with the decision? Investors are always asking you to launch more schemes.
From the very beginning, our motivation to launch a new scheme would be if- we can add value to the end investor, if there is a need in the market for a product from our Fund house, if we can provide some differentiation/simplification to the category/asset class and most importantly if we are excited to invest our own money in such a scheme.
Nothing changes regarding this thinking. We are open to launching a scheme if it satisfies the above conditions.
The scale is something everyone in the mutual fund industry never tires of speaking about. In fact, they use it to justify chasing AUM. Are you happy with your current size or scale? Or do you have any target or goals in mind to be a successful fund house?
We are more than happy and satisfied with our current size and where we are as an organization. The one metric that really overwhelms us is that when we started, we had 800 investors. Today that number is north of 18 lakhs. The fact that so many people have trusted us with their hard-earned money is testament to the small success we have had.
Our plan is to continue doing things the right way and hopefully gain even more trust from investors. I believe, this will bring us success.
Your flagship scheme- flexi cap scheme- made a distinction with its investments in a few international stocks. However, you had to change the investment strategy after the MF industry breached the overall limit. It is still not clear what the authorities have in mind. Will you eventually get out of international stocks? Or what is your strategy for the scheme?
The main objective to invest abroad is to reduce risk rather than necessarily earn a higher return. So having some part of the portfolio abroad can help with better risk-adjusted returns. Our preference is to have such an allocation.
There has been no update on increasing the limits on foreign investments, so incremental flows will be invested in Indian securities. We are hopeful that limits will be raised at an appropriate time.
Mutual funds are losing tax advantages with each passing year. Debt mutual funds lost LTCG tax recently. Earlier, holding periods were changed. Now there are speculations about equity mutual fund taxation. You must be facing these questions from investors and distributors regularly. What do you tell them? What are your thoughts on a future where all tax exemptions and deductions are gone?
The only certainty in life is death and taxes! From time to time there will be tinkering of the tax regime, and we will just have to live with the changes. Changes to taxation has happened earlier and the industry has adapted to such modifications. I am sure we will do the same in the future.
Our focus is to provide investors with a good investment experience. We need to operate well in whichever environment given to us.
TER is the taking point these days. What are your thoughts?
As we speak, there is a consultation paper on TER by the regulator. There will surely be changes coming to this and we must be ready for it. It will hamper some fund houses negatively and at the same time it will help certain fund houses. Changes will be felt by intermediaries too in the MF ecosystem. Let’s wait and see what changes come about before we say anything with certainty.
What are your plans for the fund house in the coming years? Have you identified any specific areas or activities?
The plan is to continue doing the same things that are working well for us. Due to the recent changes in debt taxation, there could either be some change to our existing hybrid scheme or a new scheme offering may be considered given the changed environment. Our preference is not to launch too many schemes and clutter the offering.
Other than the Mutual Fund, we have plans to start another business vertical. This is in a nascent stage of thinking, and we will talk about this if our plans materialize.
We can’t avoid questions about the short-term underperformance of Parag Parikh Flexi Cap Fund. Sure, Rajiv Thakkar has commented on the topic countless times. Still we would like to hear what you think about it?
Short term underperformance is a given when managing equity funds. Our stance has always been that equity is a long-term product and if someone does not have the patience to remain invested for a minimum of five years, then they should not invest in equity funds. Stock markets are inherently volatile, so ups and downs are part and parcel of equity investing. One must have the patience and discipline to see through tough times to enjoy the good times.
We will periodically take cash calls if opportunities are hard to come by and if we are not comfortable with prevailing valuations. This could lead to some short-term underperformance. But we are clear that we will not chase returns or force ourselves to invest if it is not in the best interest of our investors. We don’t mind taking short term pain for long term gain.
