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 soÂ irresistibleÂ 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, Â 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.