Our strengths are: (1) the unique design of our scheme under which we can invest across market capitalisation, geographies and sectors without launching multiple schemes and without confusing investors; (2) international stock exposure; (3) alignment of the interests of the promoters and employees of PPFAS Mutual Fund with those of our scheme's investors by investing with them in the scheme; (4) treatment of money management like a profession where the client's interests come first. When money management becomes a business, then one only cares about the AUM and the investors can lose out; and (5) lean and profitable mutual fund structure.
A lack of retail reach and visibility is our weakness. We are expanding our distribution channel.
Branding is one more thing that we are looking at. We find that a lot of people know about Parag Parikh but don't know that PPFAS Mutual Fund was started and founded by him.
Challenges ahead
The stakeholders of a mutual fund have huge expectations. Some of them are conflicting. Investors want lower expense ratios, regulators want more penetration and distributors want higher commission. Going forward all these will be possible together. More scale will give higher absolute commission and lower expense ratio while increasing penetration. But this will require some time and effort in terms of developing the right infrastructure and systems. Patience and long-term thinking by all stakeholders is required.
Currently, expectations of returns are too high. Commodity cycle is down and consumption plays are still expensive. What is needed is a bottom-up stock-picking approach, longer time horizons and moderate expectations.
Competition
In equities there is over-diversity in terms of nomenclatures of funds (having similar portfolios), series, etc., which defeats the purpose of diversity and leads to mis-selling to retail investors. What is required is a simplified scheme structure.
On the other hand, we need to welcome more investment professionals as innovation in the industry will only come with smaller players. Of course the increase in net worth (from ₹10 crore to ₹50 crore) will be a big barrier for smaller players.
Retail reach
We do not have any targets and we do not have a sales team. We have relationship managers. They reach out to like-minded distributors and IFAs as well as individual investors who believe in our style of investing. In a profession, one cannot have targets as it can lead to mis-selling and be harmful to the end user. We tend to educate people and communicate to them the benefits of equity investments rather than going all out to sell our fund.
This article was originally published on November 30, 2015.
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