A few days ago, the annual unitholders meeting of PPFAS Mutual Fund happened in Mumbai. It is the only such event that happens in the mutual fund industry where unit holders can come and ask questions about any stock in the portfolio. I’ve been moderating it for two years in a row, both as a journalist and a unit holder myself. I’ve invested a meaningful part of my savings in PPFAS Flexicap Fund since 2020. The fund has delivered roughly 23% CAGR over the past 3 years—and these have been very real for me, rather than a mere journalistic exercise.
At the event, the central message of PPFAS Mutual Fund’s chief investment officer and director Rajeev Thakkar was not about the high returns, but instead an admonition. Moderate your expectations, he said. Instead of harping on the incredible 20% that the PPFAS Flexicap Fund has delivered since it was launched in 2013, Thakkar told the assembled investors that “your guess is as good as mine” when it comes to future returns.
Despite Thakkar’s sober message, there aren’t a lot of reasons to be pessimistic. PPFAS Flexicap has delivered 27% over the past year without being meaningfully invested in mid and small caps. As per Value Research data, it has about 11% in mid and small caps. In the past year, the category return average was 17.5% for flexicap funds and 34% for small cap funds.
To those worried about mid- and small-cap valuations, a crash there isn’t likely to hurt the Flexicap fund. Mind you, a fund should be analysed by its long-term performance, and not 1-year returns. But the long term is made up of many short terms, and it is useful to see how a fund navigates the bends and curves along the way.
US stocks were considered a big source of alpha the past few years, but that’s no longer the case. Due to the RBI limit on overseas investments that has been in place since February 2022, the share of US stocks has shrunk to 16% in the portfolio. The alpha that is coming now is from pure skill. Most of the core team has been with PPFAS for a long time—Thakkar for over 20 years, and fund managers Raunak Onkar and Raj Mehta for over 10 years.
Another source of comfort is the fund’s willingness to take cash calls (currently 14% of the corpus). If things get bubbly, they don’t hesitate to get out.
All that said, I take Thakkar’s message to heart. I certainly don’t expect 20%+ returns next year or the year after that. If it happens, well, I will take it as a bonus. What I do expect from this stellar fund management team is some alpha over long periods of time, an honesty in their communication with unit holders, and a continuation of their highly principled approach to asset management (they don’t go on new fund offer sprees for the heck of it).
Now, some practical announcements made at the meeting:
- PPFAS will launch a new hybrid fund with more than 35% equity to give unit holders the benefit of long-term capital gains tax (LTCG) on hybrid products. It may merge its existing Conservative Hybrid Fund into the new scheme, if the regulator permits.
- It will create a facility of insta redemption in its liquid fund.
- It has stopped SIPs from NRIs in the US and Canada because it got a legal opinion that it cannot market itself in those countries without approval from their regulators. However, these NRIs can still invest in the fund when they are visiting India (be physically present in the country, and invest via cheque).