After a gap of six years, PPFAS Mutual Fund has launched another equity scheme, Parag Parikh Tax Saver Fund (PPTSF) after its only equity scheme Parag Parikh Long Term Equity Fund.  PPFAS Mutual Fund, a small fund house, since its inception in 2013 had only two schemes in its product basket. One equity scheme (Parag Parikh Long Term Equity Fund) and one debt scheme (Parag Parikh Liquid Fund).

[Read: Parag Parikh Mutual Fund All Set To Launch Its Second Equity Fund]

Parag Parikh Tax Saver Fund, an Equity Linked Saving Scheme, is a diversified equity fund that offers a dual benefit of capital appreciation over a long term due to investments in equity and tax rebate under Section 80C (up to Rs 1.5 lakh) as well.   A distinguishing feature about ELSSs is that they are subject to a compulsory lock-in period of 3 years, but the minimum application amount in most of them is as little as Rs 500, with no upper limit.

Since, PPTSF being a diversified equity fund, will invest across market cap and sectors with a focus on strong fundamentals while selecting stocks for the portfolio. The scheme will invest more than 80% of its total assets in equity and equity-related securities. So, from a risk-return standpoint, PPTSF is a high risk-high return investment proposition.

In the long-term, if you intend to create wealth, then a tax saving fund such as PPTSF could potentially clock lucrative inflation-adjusted returns if the portfolio construction is done astutely and risks are managed well. But remember, there is high risk. Hence, before you invest recognise your risk profile and make sure you have an investment time horizon of at least 3 years.

[Read: How To Improve Your Return On Investments?]

You can do either lump sum investments or investments through a Systematic Investment Plan (SIP). In the case of the latter, each instalment has a 3-year lock-in period. Both individuals and HUFs are entitled to invest in ELSS.

Table1: Details of Parag Parikh Tax Saver Fund

Type Open-ended Equity Linked Savings Scheme with a statutory lock-in of 3 years and tax benefit. Category Equity-linked saving scheme
Investment Objective To generate long-term capital appreciation through a diversified portfolio of equity and equity-related securities.

The Scheme does not guarantee or assure any returns.
Min. Investment Rs 500 and in multiples of Rs 500 thereafter Face Value Rs 10 per unit
Plans  • Regular
• Direct
Options • Growth (default option)
• Dividend Payout
Entry Load Nil Exit Load Nil
Fund Manager Mr Rajeev Thakkar, Mr Raunak Onkar and Mr Raj Mehta Benchmark Index NIFTY 500 TRI
Issue Opens July 04, 2019 Issue Closes: July 18, 2019

(Source: Scheme Information Document)

How will the scheme allocate its assets?

Under normal circumstances, it is anticipated that the asset allocation of the scheme will be as follows:

Table 2:  PPTSF’s Asset Allocation

Instruments Indicative allocations (% of Total Assets) Risk Profile
Equity and Equity related instruments*# 80 – 100 High
Debt Instruments & Money Market Instruments** 0 – 20Low to Medium

**Money Market Instruments include CMBs, T-Bills, and Government securities with an unexpired maturity up to one year, Tri-Party REPO & Repo/ Reverse Repo.

#The Scheme may invest in derivative products from time to time only if permitted under ELSS Rules. In such event, the exposure to derivative instruments shall not exceed 50% of the total Net Assets of Scheme. The Scheme may use derivatives for such purposes as may be permitted by the Regulations, including for the purpose of hedging and portfolio balancing, based on the opportunities available and subject to guidelines issued by SEBI from time to time. The cumulative gross exposure through equity, debt and derivative positions should not exceed 100% of the net assets of the scheme. Investment in Foreign Securities would be made only if permitted under ELSS Rules. The Scheme may seek investment opportunities in foreign securities including ADRs / GDRs / Foreign equity subject to SEBI (MF) Regulations. Such Investment shall not exceed 35% of the net assets of the Scheme. The scheme may invest in a maximum of 20% in securitised debt subject to necessary approvals from the SEBI, RBI and under ELSS Guidelines.

*Equity related instruments shall mean equities, cumulative convertible preference shares and fully convertible debentures and bonds of companies. Investment may also be made in partly convertible issues of debentures and bonds including those issued on rights basis subject to the condition that, as far as possible, the non-convertible portion of the debentures so acquired or subscribed, shall be disinvested within a period of 12 (twelve) months.

(Source: Scheme Information Document)

What will be the Investment Strategy?

Investments would be made with a long-term perspective. The investment objective of the Parag Parikh Tax Saver Fund is to seek to generate long-term capital growth from an actively managed portfolio primarily of equity and Equity Related Securities. The Scheme will invest in a diversified portfolio of strong growth companies with sustainable business models.

The portfolio will be built utilising a bottom-up stock selection process, focusing on appreciation potential of individual stocks from a fundamental perspective. The fund managers will employ a fundamentals-based research process to analyse the appreciation potential of each stock in its universe. The universe of stocks is carefully selected to include companies having robust business models and enjoying sustainable competitive advantages as compared to their competitors. The Fund will have the flexibility to invest across the market capitalization spectrum.

The Scheme will endeavour to remain fully invested in equity and equity-related instruments at all times.

Investment in debt securities and money market instruments will be as per the limits in the asset allocation table of the scheme, within the prescribed limits laid under SEBI (MF) Regulations. The investment team of the fund managers will, as a mitigation and risk control procedure, carry out rigorous credit evaluation of the issuer company proposed to be invested in. The credit evaluation will analyse the operating environment of the issuer, business model, management, governance practices, quality of the financials, the past track record as well as the future prospects of the issuer and the financial health of the issuer

Who will manage the Parag Parikh Tax Saver Fund?

The equity portion of the Parag Parikh Tax Saver Fund will be managed by Mr Rajeev Thakkar & Mr Raunak Onkar (overseas investment), while Mr Raj Mehta will manage the debt potion.

Mr Rajeev Thakkar is the Chief Investment Officer & Equity Fund Manager at PPFAS Mutual Fund. He holds a bachelor’s degree in Commerce from the University of Mumbai, is a Chartered Accountant, Cost Accountant and CFA Charterholder. He started his career in the year 1994 and he has experience of working in areas like; merchant banking, managing fixed income, portfolio, broking operations, PMS operations.  He joined the sponsor of PPFAS AMC in 2001. He was functioning as a Fund Manager for PMS service of PPFAS managing a portfolio of around Rs. 300 crores. He is acting as a Chief Investment Officer and Equity Fund Manager to the Company. He is managing the Scheme- Parag Parikh Long Term Equity Fund since its inception in May 2013.

Mr Raunak Onkar is the Head of Research and manages the overseas investment of the flagship scheme Parag Parikh Long Term Equity Fund since its inception at the fund house. He has done his MMS in Finance from the University of Mumbai and holds a BSc. IT degree from the University of Mumbai. He has over 10 years of experience in the capital market and has been working with the company as an Associate Fund Manager.

Mr Raj Mehta is the Debt Fund Manager at the at PPFAS Mutual Fund. He is a Commerce graduate from University of Mumbai, a fellow member of Institute of Chartered Accountants of India (ICAI) and is a CFA Charter Holder. He is also a certificate holder of FIMMDA-NSE Debt Market module issued by NCFM. Mr Mehta has over 6 years of experience in investment research. He started his career with PPFAS Asset Management Pvt Ltd as an intern in 2012 and joined the company as a Research Analyst in 2013.

The outlook for Parag Parikh Tax Saver Fund:

As mentioned earlier, in an endeavour to achieve the stated objective of the Parag Parikh Tax Saver Fund, the investments will be in equity and equity related instruments predominantly and the managers will follow a bottom-up stock selection process.

Based on fundamental research, the fund managers will actively manage the portfolio and will flexibly invest across the market capitalization spectrum. The managers will include companies having robust business models and enjoying sustainable competitive advantages as compared to their competitors with adequate safeguards for controlling risks in the portfolio construction process.

To control the risk emanating from investing in equities, portfolio diversification is done. The Scheme would invest in a diversified portfolio of equity and equity-related securities which would help alleviate the credit, sector/market capitalization related concentration risk. The AMC believes that this diversification would help achieve the desired level of consistency in returns.

But being an equity-oriented scheme, as mentioned earlier, PPTSF will be a high risk-high return investment proposition.

Considering the current market conditions where small-cap and mid-cap companies have corrected, and even large caps tumbled on account of the Budget announcement of surcharge; it provides an opportunity to do some value buying but valuations aren’t cheap.

[Read: Looking for The Best ‘Value Funds’ For 2019? Find Out Here]

And the markets brace up for the results season, the corporate earnings need to start justifying the valuations, there are governance issues with a few companies, and some companies that are debt-free aren’t cheap.

Global headwinds are also in play such as the geopolitical tensions, so going ahead the equity markets are expected to remain highly volatile. Hence, it will not be an easy year for wealth creation and volatility will be obvious. Hence, constructing the portfolio would be a challenging task for the fund managers, and if the Indian equity markets hit more turbulent waters ahead it may inflict high-risk.

[Read: Why Comparing Returns to Risk Is More Meaningful!]

Also, remember Parag Parikh Tax Saver Fund being an ELSS has a compulsory lock-in period of 3 years. So before investing in an ELSS make sure your risk appetite is high and you have an investment time horizon of at least 3 years.

[Read: Which Are The Best ELSSs (Tax Saving Funds) For 2019?]

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