PPFAS Mutual Fund Review

I am usually reluctant about writing a review on a mutual fund NFO as the standard conclusion for most of these is that you should wait a couple of years or so before investing in them.

Usually there is nothing that a new fund offers that is so irresistible that you overlook the fact that it has got no track record and invest immediately.

This is true for the PPFAS mutual fund also, and that’s primarily the reason I’ve held back on reviewing it. However, there have been at least two comments in the Suggest a Topic page to review this fund, and therefore I’m going ahead and doing a small post on it.

This fund is being launched by the Parag Parikh Financial Advisory Services Ltd., which is the parent company and offers Portfolio Management Services to its clients among other things. They manage Rs. 300 crores right now, and I’m fairly a certain a lot of readers are familiar with Mr. Parag Parikh himself as well.

This is an actively managed equity fund which will invest more than 65% of its assets in equity, and the rest in debt products.

The SID says that they are going to invest in securities that are trading at a discount to their intrinsic value, and that this scheme is only suitable for long term investors whose horizon for investing in stocks is at least 5 years.

I’ve seen at least a few reviews that in my opinion have gotten carried away with the description of this approach. You must appreciate that at the end of the day, every actively managed fund, and even small time investor like me is doing the same thing. No one goes in and buys something because they think it is overvalued,  everyone who is an investor (not a trader) is buying a share because they think that the company is worth more than what the share is trading for.

That in itself doesn’t make a great value investor.

Ultimately, valuation is opinion, and not a fact. Your view of intrinsic value may be significantly different from my view of intrinsic value, and then what matters is who is right.

Five years ago, I may have thought a certain company is a great company, and is severely undervalued, but today that share is just half of what it was 5 years ago, so what counts is how good am I in truly discovering undervalued stocks.

The same is true for a mutual fund as well, and what we need to see is how good is PPFAS in executing their strategy of finding undervalued stocks and investing in them.

I don’t think this can be done without a track record, and that’s the reason I started out by saying that the standard conclusion of waiting out before investing applies for this fund also.

I’d be remiss if I didn’t state that there are a lot of cool things about this fund like having a section on their website that actually discourages a certain type of investor from investing with them.

They are also quite frank with investors. Like this excerpt:

It is well known that to be successful in investing one must invest when others are fearful and divest when others are greedy. However, considering that PPFAS Long Term Value Fund is an open ended scheme, its ability to invest during bear markets will depend on your behaviour as investors. If investors desert us when prices are low, it will naturally constrain our ability to make invest when valuations are alluring.

I don’t think I have ever seen that before.

Or the fact that even the results for their PMS products are shared on their website (which has done well); this is not the norm as far as I know.

They have tutorials on behavioral finance on their website as well, which is quite rare.

All of these show good intentions, but unfortunately that alone is not enough, there is no way to tell whether these good intentions will translate into good performance or not, and that’s why I have to disappoint you with my standard conclusion of wait and watch for this fund also.

This post is from the Suggest a Topic page.

How much do NRIs contribute to the Indian economy?

Mr. Ramamurthy posted the following comment a few days ago:

Do you have the breakup of invisible imports? I presume it includes remittances made by Indians working abroad who send money to India? I think you did a post showing this? I cant access this?

I think he meant invisible exports, and this is a simple question, the answer to which is slightly complicated because of the way you have to get to the numbers.

Let’s quickly address what “invisibles” mean before looking at the numbers. Invisibles are that part of trade where no physical goods are exported or imported.

So, IT Services are one example, and remittances by NRIs are another.

To get to these numbers you have to look at the BoP (You can read more about this in my detailed post on Balance of Payments) data that RBI releases every quarter.

I got hold of the April – December 2012 provisional numbers, and from that I see that personal transfers which are defined as current transfers between residents and non – residents households constitute $48.5 billion for that time frame. It is hard to understand what this number means without viewing it in the right context.

The context in this case is how do these transfers compare to India’s overall exports?

Let’s start with services exports. The services exports for that nine month period was $105.8 billion which means that remittances were the size of about 46% of total services exports.

Telecom and IT services are the biggest services exports from India, and in that period those amounted to $49.6 billion so at $48.5 billion, remittances are almost as big as IT exports.

The next step is to see how these compare to overall exports, and for that we have to consider our goods exports. For that period, the goods exports were $218.3 billion, so remittances were about 22% of that amount.

So, by any measure, these are significant contributions, and you can see this by visualizing India’s current account receipts which is nothing but the income India earned from abroad for that quarter.

This is broken up into four heads (figures in Millions USD:

Goods 218,382
Services 105,840
Primary Income 7,636
Secondary Income (Remittances are 96% of this) 50,864
Total 382,721



How much do NRIs contribute to Indian Economy

As the chart above shows secondary income (which is mainly transfers) form about 13% of India’s current account earnings, and while significant, this is still a lot less than total goods exports, of which petroleum products form the major chunk, but that’s a post for another time.

Ants on skyscrapers get promoted in foggy Beijing

In a bit of a hurry today so doing quick links.

NYT on a fascinating story on what a big deal pollution is in China.

Excellent post on 5 things every presenter should know about people

Is Pakistan the next frontier for entrepreneurs?

Very interesting article on why putting trees on skyscrapers is not a good idea. 

HBR on what to do when you have angered someone?

The greatest 25 books of all time

Finally, did you know that ants also got promotions?

REITs in India

REIT stands for Real Estate Investment Trust and is a type of a mutual fund. REITs are fairly common in the US and while SEBI had a proposal to allow them in India a few years ago, not much progress has been made since then.

Just like any other mutual fund – the REIT operators will get the money from the public and then invest it in real estate with the primary motive of earning income on it. In the US, they have to distribute most of their income as dividends and that would probably be how they work in India as well.

In an American context, this works great because the interest on fixed deposits is zero, and rental yield is decent but India is very different from the US in that way. Here the rental yields are low, and the fixed deposit rates are high so a REIT’s appeal will be more by way of capital gains than yields.

Right now, those who can afford it — buy houses with the hope of capital appreciation, and they don’t care about rental incomes at all. I would imagine that if REITs were traded in India then the same will be true for those also.

People who buy REITs will be interested in capital appreciation rather than looking for any type of yield or steady income.

I think the idea behind allowing REITs in India is to get money flowing in real estate and getting real estate developed with this money so that the demand and supply gap is bridged.

However, I think the gap is not so much because there is shortage of money but because of other administrative problems like land acquisition and clearances so to that extent the introduction of REITs may not help with that.

There was some hope that there will be something about REITs in the budget this year but there wasn’t and I haven’t read anything else that suggests that it is likely to materialize in the near future.

If there is something, I’ll do another post with the details of regulation and how they are likely to function, but I honestly don’t feel that they will have a lot of utility in India.

This post was from the Suggest a Topic page.

Are top ups on life insurance policies eligible for 80C deductions?

Harshit Shah posted the following comment a few days ago:

Harshit Shah April 17, 2013 at 1:42 pm [edit]


First of all i would like to thank you to make this website which is guiding investor for better investing.

I need your support in understanding none aspect of insurance: Top-up premium in life insurance.

I have taken life insurance policy Kotak invest maxima with five years premium payment and 25 years policy term. I have invested first year premium of one lack rupees. I still have cash surplus which needs to be invested. As per policy document i am free to make top-up up to 10 X first year premium .ie. 10 lacks. There is no top-up premium allocation charge under this policy. The top-up premium shall be lock-in for five years. The top-up premium will require 1.1 to 1.25 times insurance cover.

My question is: What are tax implication if i invest 1 lack rupees additional as top-up and withdraw that amount after five years.?

My request to you is if you can post an article on “Top-up in life insurance it’s benefits and tax implication”

Thanks & regards,
Harshit Shah

Kotak Invest Maxima is covered by 80C and I couldn’t find anything that excludes top up premiums from being considered for 80C deductions so to the best of my knowledge, the money you spend on a top up of this policy should also be eligible for tax deduction.

I also don’t think it will make any difference when you withdraw it after five years.

This plan is also covered under 10 10(D) which states that the amount you receive from the policy will be tax free as long as the premium is less than 10% of the amount assured in every year you pay the premium. If you pay the top up in a certain year is this clause getting violated and if so will the tax benefit under 10 10(D) be removed?

I don’t know anything about this and if someone can leave a comment about it that will be much appreciated.

Also, please note that this post has nothing to do with whether you should invest in Kotak Invest Maxima to begin with or not – I’m just trying to answer the question of the tax angle.

Features of the US Immigration Bill of interest to Indians

The US has recently introduced a bill on immigration and since US is the second largest home to Indian diaspora with about 3 million people of Indian origin residing there – this bill is of a lot of interest to Indians.

The bill is named  “Border Security, Economic Opportunity, and Immigration Modernization Act” and it is still a long way from becoming law and according to the NYT it is too early to predict when it may get passed. 

The bill is 844 pages long, and the primary focus is on immigrants who are already present in the US illegally, and providing them a way to citizenship. To that extent, large sections of the bill are not relevant to Indians, and in this post I’m going to discuss the parts of the bill which will have some meaningful impact on Indians.

 1. Increase in the H-1B Visa Limit: Currently, the limit on H-1B visas is 65,000 per year for regular cases and an additional 20,000 for advanced-degrees. This limit got exhausted within 5 days this year as 124,000 petitions were filed within that time frame.

The bill proposes to increase the limit to 110,000 and the cap for advanced-degrees will be raised to 25,000. There is a provision in the bill to increase the quota of H-1B visas gradually based on what they are calling the “High Skilled Job Demand Index” and the limit may go as high as 180,000 in later years.

2. Spouses of H-1B Visa holders will be allowed to work based on reciprocity: Currently, the spouse of a H-1B visa worker who gets the H-4 visa is not permitted to work in the US. According to the bill, spouses will be allowed to work if the other country also allows this. As far as I know, India doesn’t allow the spouses of Americans to work in India, so this provision will not be applicable to Indians.

3. US employers to pay higher wages to H-1B workers: There is a concern that on occasion H-1B workers work on lower wages in the US when compared with what an American citizen would have got, and the new bill makes it necessary for the employer to pay them equivalent wage. It will also make it necessary to advertise the H-1B job one month prior to hiring a foreign H-1B worker and give first priority to Americans.

4. Companies with higher H-1Bs to pay more visa fees: If a US employer has more than 50 H-1B or L-1 workers and if they form 30 – 50 percent of the staff then the employer will have to pay an additional fee of $5,000 for each new H-1B. Similarly, if they have more than 50% staff on H-1B or L-1 visa then they will have to pay an additional fee of $10,000 for each new H-1B. After 75%, they will no longer be allowed to get a foreign employee to work in the US.

5. Siblings of US citizens no longer eligible for green card: Currently, US citizens can apply a green card for their siblings as well, but this bill seeks to eliminate that.

I’ve heard chatter from people that the passage of this bill will make it faster for people from India to get green cards under the EB-2 and EB-3 category, but there is nothing in the bill about that, and it is unlikely that anything will be added to make that long wait shorter.

I couldn’t find anything else that felt like it would be of significant interest to Indians, but if you see anything please leave a comment and I’ll update the post.

Also, worth repeating that none of this is law yet and there is still a long way to go.

Motilal Oswal MOSt Focused 25 Fund Review

Motilal Oswal has come out with their first actively managed mutual fund and it’s called the MOSt Focused 25 Fund. It’s named this way because the fund will invest in up to 25 stocks at any given time.

What will Motilal Oswal MOSt Focused 25 Fund invest in?

This is an open ended equity fund, and they will invest 65 to 100 percent of their money in the top 200 biggest listed stocks. They have also said that they may invest up to 25% of their funds in stocks beyond the top 200 as long as the market capitalization of the company is more than Rs. 1,400 crores. They can also invest a portion of their assets in debt instruments.

I was curious to see how many companies fit this criteria and I looked at the S&P BSE 500 index to find that information. The 200th company in there is Supreme Industries with a market capitalization of about Rs. 4,000 crores, and then WELCORP is number 368 with a market capitalization of Rs. 1404 crores.

Now the S&P CNX 500 represents about 96% of the free float market capitalization of stocks listed on NSE, and this fund is able to invest in about 37o of them, so in that sense there is not really a whole lot of restriction in where it can invest. You can expect the bulk of the funds to be in large or mid cap stocks, but other than that the condition of the top 200 and then beyond that companies with more than Rs. 1,400 crores in market capitalization doesn’t narrow down the field in any significant manner as far as I can tell.

How do 25 shares compare with other big funds?

The next interesting thing to look at is the 25 number. If this active fund holds 25 stocks – how does that meaningfully differ from any other active fund which doesn’t impose such a restriction on itself.

Let’s take the example of HDFC Top 200 because it is successful, somewhat similar in structure to the extent that it can only choose companies from BSE 200, and is very big in size so that can give an indication on how many stocks huge funds need to own.

They have an Excel download with the portfolio of Top 200 as on March 31st 2013, and there you can see that this fund owns 69 stocks, so that’s way more than 25!

Also, you can see that the top 25 stocks form about 70% of their portfolio, and the last 44 constitute only about 28% of their portfolio (they have 2% cash) so that’s an interesting contrast that shows what they mean when they say focused.

I feel this is a good thing because all the stocks in their portfolio should be in a position to meaningfully impact their portfolio if they set an upper limit of 25. That in itself is no magic bullet though, and can backfire as well, but as far as strategies go, it appeals to me.

Who is the fund manager of Motilal Oswal MOSt Focused 25 Fund? 

There are two fund managers – Mr. Taher Badhsah who is responsible for the equity part, and Mr. Mr. Abhiroop Mukherjee who is responsible for the debt part.

I’m going to excerpt the information about Mr. Taher Badhsah from the offer document. 

Mr. Taher Badhsah is the Fund Manager of this Scheme and is responsible for managing investments in equity and equity related instruments of the Scheme. Taher is a B.E. in Electronics from the University of  Mumbai with a Masters in Management Studies (Finance) from the SP Jain Institute of Management, Mumbai. He has over 18 years of rich experience in fund management and investment research. He started his career as an automobiles analyst with Motilal Oswal and has been well-regarded in the industry for his work in this sector. Besides, Taher has also worked in different capacities with organizations like Kotak Mahindra and Prudential ICICI Asset Management Ltd.. He has spent the first 10 years of his career doing sell-side equity research and the past 8 years in active fund management. Taher has worked as a Senior Fund Manager for ICICI Prudential PMS for 3 years post which his last assignment has been with Kotak Mahindra Investment Advisors as a Fund Manager managing a part of their long-only offshore equity assets between 2007 and 2010. At Motilal Oswal AMC, in his capacity as Sr. Fund Manager and Co-Head Equities, he has led the active equity investment team since 2010. Mr. Taher Badshah is not a fund manager for any other schemes of Motilal Oswal Mutual Fund except Motilal Oswal MOSt Focused 25 Fund.

I’m unable to make any meaningful inference out of this, so I’ll leave it without further comment.

Expenses and Dates

The offer document says that the fees will be under the maximum permissible so I think it’s fair to assume that this is not going to be a low cost fund.

The NFO opened on 22 April 2013, and will close on May 06 2013.


Motilal is not the first to come up with the idea of 25 stocks but I do like the idea. However, there is no way to tell how an actively managed fund will perform without looking at the performance itself.

If you are in the market for an actively managed fund, I’d say it is better to invest in one that has already shown promise and keep this one in your watch-list to see how the fund does in a two or three year’s time.

5 changes in content based on last week’s feedback

Last week I posted some stats about OneMint, and how I was disappointed by the fall in traffic witnessed in the last year. It was amazing to see so many comments and emails on that post, and I thank all of you for your support.

I’ve been thinking about all the feedback I got, and I have put together a list of 5 items that I want to do in the future based on it.  

1. Expand the scope of topics: Pattu posted the first comment on that post and it was about boredom – he was quite close to what I’ve been feeling over the past year or so and the reason for that is that almost all the content is now driven by what others have requested as opposed to the earlier years when I was writing about things that I stumbled upon and wanted to learn more on.

I need to get that mix going again and write about some non finance related topics that interest me and that I feel might be of interest to others. I think some articles explaining current events will be useful here too. For example, RBI has recently given a nod to create the country’s first mortgage guarantee company – why are they doing this? What does this mean for people, and how has other country’s experience with this been. This could also be lighter things like how does TIME decide that Aamir Khan or P. Chidambaram are influential enough to be in their list?

2. Answer comments within a day: No one mentioned this specifically, but I feel bad whenever it takes me more than a day to reply to a comment, and I’m going to try and respond to each and every comment within 24 hours. I get a fair bit of email as well and while I try to answer each and every email it is really hard to keep track of it. It’s a lot better to post a comment if you need a reply, and please don’t mind following up if I don’t respond to your email within a couple of days.

3. Add depth to the posts: There was criticism about posts being simple, and I’m going to try and address that by adding more content about difficult topics, and writing in more detail about simpler ones.

4.  Maintain posting frequency: With all that I’ve got going – 6 posts in a week is the most I can manage, and I’m going to try and stick to that for the rest of the year.

5. Covering more investment products: Unfortunately, there aren’t many good products and many times I look over a name and pass writing about it because it doesn’t look interesting enough. I got some feedback on covering more investment products even if they aren’t good because even that is meaningful information for people who don’t know about them.

I’m really grateful for all your feedback last week. It was quite unexpected, and has really energized me to focus on OneMint and try to grow it once again.

Nothing is as motivating as knowing that people find value in what you are doing, and I’m really glad that so many of you feel that way.

CEO who interviewed Prime Meridian had excel errors in underwear

Let’s start this week with a very interesting interview with the CEO of Guidewire – Marcus Ryu. I feel that a lot of CEO interviews are really lofty and talk about things that sound far away from reality, but this wasn’t anything like it. He spoke about practical things which made sense and were down to earth executable ideas.

Gold has fallen a fair bit this week, and billionaire hedge fund manager John Paulson had a loss of $1.5 billion on his gold related holdings.

China had a relatively slow quarter, but the Economist doesn’t think that these numbers are all bad.

MarketWatch tells us that men’s underwear sales are up, and that’s good for the economy.

Not only do techies make millions in Silicon Valley, it seems that some sex workers can earn seven figures as well.

Reinhart and Rogoff of the “This Time is Different” fame made a rather embarrassing Excel calculation error, and HBR does a great job of detailing it out and what it means for Macro Economics predictions in general. 

Finally, did you know that the Prime Meridian that separates East from West on earth is arbitrary?

What is the difference between NPS Tier 1 Account, Tier 2 Account and Swavalamban scheme?

You have several options when it comes to opening an NPS account, and if you are just starting out — it is better to familiarize yourself with at least these three options:

  1. Tier 1 NPS Account
  2. Tier 2 NPS Account
  3. Swavalamban Scheme

In this post, I’m going to talk about them briefly, discuss what differentiates one from the other, and which one is appropriate for what type of investor.

Tier 1 NPS Account

The first account is called Tier 1 NPS Account, and the Tier 1 Account is mandatory for all central government employees. It is mandatory for them to contribute 10% of their basic salary plus DA plus DP every month towards this account, and the government matches this contribution.

There are severe restrictions on how money can be withdrawn from the Tier 1 account, as it is necessary to invest 80% of your money in an annuity with Insurance Regulatory Development Authority (IRDA) if you withdraw before age 60. You can keep the remaining 20% with you.

When you attain the age of 60, you have to invest at least 40% in an annuity with IRDA; the remaining can be withdrawn in lump-sum or in a phased manner.

Even if you are not a government employee, you can still open a Tier 1 account, and if you are interested in NPS, you will need to open a Tier 1 account as that’s necessary in order to open a Tier 2 account, which I’ll come to in a moment.

There is a minimum that you have to commit to investing in NPS, and for the Tier 1 account that minimum is Rs. 6,000 per year.

Tier 2 NPS Account

The Tier 2 NPS account is very similar to the Tier 1 account, and if you are not a government employee who wants to invest in NPS, you would want to invest the minimum of Rs. 6,000 in Tier 1 and then invest the rest of your money in the Tier 2 account.

This is because Tier 2 is quite similar to Tier 1 in all respects except for the harsh withdrawal conditions. You are free to withdraw your money from the Tier 2 account any time that you want without any penalties.

Minimum amount for opening Tier 2 account is Rs. 1,000 and minimum balance required at the end of the year is Rs. 2,000. You need to make at least 4 contributions in a year.

Swavalamban Scheme

This scheme is really for the financially less fortunate members of the society and is really a way for the government to incentivize investments for them.

The government pays Rs. 1,000 every year for four years, if you open a NPS account under the Swavalamban scheme, but there are limitations on who can open an account under the Swavalamban scheme.

Following conditions apply:

  • Subscriber is not covered under employer assisted retirement benefit scheme and also not covered by social security schemes under any of the following laws:
    • Employee Provident Fund and Miscellaneous Provision Act, 1952
    • The Coal Mines Provident Fund and Miscellaneous Provision Act, 1948
    • The Seamen’s Provident Fund Act, 1966
    • The Assam Tea Plantation Provident Fund and Pension Fund Scheme Act, 1955
    • The Jammu & Kashmir Employee Provident Fund Act, 1961
  • Subscriber contribution in NPS is minimum Rs. 1000 and maximum Rs.12000 per annum, for both Tier1 and Tier II taken together, provided subscriber makes minimum contribution of Rs.1000 per annum to his Tier 1 account

Based on the limitations mentioned above, I think most people reading this blog will be ineligible.


If you are not a Central Government employee who has to put in money mandatorily in NPS then you should be very cautious about saving money here.

This is because there are restrictions on where you can invest your money after you get it at retirement. They make you buy annuities which are not the greatest products right now. I don’t see much value in investing in NPS as it stands today because of the frequent changes, and uncertainties surrounding this scheme. You may as well invest this money on your own in the a debt or equity product based on your preference, and stay away from the restrictions imposed on you by the scheme.

This post is from the Suggest a Topic page.