Product Crack: PPFAS Long Term Value Fund

It is an equity diversified fund that will invest in companies across market capitalization.

PPFAS Asset Management Ltd is the latest entrant in the 8.25 trillion Indian mutual fund (MF) industry. It belongs to Parag Parikh Financial Advisory Services Ltd, an investment advisory firm that has managed portfolio management services (PMS) schemes for many years. The MF has introduced its first scheme—PPFAS Long Term Value Fund (PLTV). It is an equity diversified fund that will invest in companies across market capitalization. It will follow a “value" style of investing and will invest in scrips where it says it will not “overpay for the stocks". Fund manager Rajeev Thakkar said PLTV will invest in mid- and small-cap scrips as well.

What we like

PPFAS AMC aims to be different in its approach. Though it is a new fund house, it has said that in the “foreseeable future", this is the only equity fund it aims to manage. Though it’s too soon to tell, the fund house doesn’t seem to be in a mood to garner assets. It has empanelled few distributors to sell its scheme and it seems to have carefully chosen them because it has made it clear that it will not pay any upfront fees; only trail feel will be paid as commission. They too have been turned down by few distributors.

In recent years, when Parag Parikh Financial Advisory applied for a license to start its MF operations, it decided to wind up its PMS business and shift its existing investors to the MF business.

What we don’t like

Just like any other new scheme launched, PLTV has no track record. Though its PMS’ flagship scheme has generated a five-year return of 12.84% as against 5.33% returned by Sensex (as of April 2013-end) and the fund manager for both, the PMS as well as PLTV, is the same, a prior track record of managing a new MF scheme could have instilled confidence.

The scheme’s marketing material mentions that PLTV is meant for investors who come with a minimum of five-year tenor. Yet, PLTV does not carry any exit load. This seems contradictory; exit loads discourage premature withdrawals. Also exit loads collected now get ploughed back in the scheme.

What should you do?

A new fund house attempting to penetrate an industry filled with 43 fund houses that aims to walk a different path is always welcome. PPFAS aims to keep its operations small and has resolved to not to run after assets. Parag Parikh Financial Advisory has a track record in managing value-styled portfolios, so PLTV is an extension. At present, the fund should not be your first or second or even third MF investment. If your portfolio is already established with a reasonable amount of schemes, and you want to add the flavour of a new house, only then take a small exposure.