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| Parag S Parikh |
Parag S. Parikh is the Founder and Non-Executive Director of Parag
Parikh Financial Advisory Services Ltd. (PPFAS) and the CEO of PPFAS Mutual Fund. He is a fellow of the
prestigious 'Owner President Management' (OPM) Program at the Harvard Business School, and an
M.Com. from the Bombay University.
A keen learner and a contrarian, he is always looking for new ideas and
regularly attends learning programs at the Harvard Business School and other Institutes.
He is one of the first Indians to study and put into practice, the concept of 'Behavioral Finance' - an emerging
science that studies human behavior towards stock investing and money matters.
His book, “Stocks
to Riches – Insights on Investor Behavior” (2005) attempts to simplify the process of investing
in stocks and provides the investor with the basic behavioral biases that
affect decision making. His second book “Value Investing and Behavioral Finance:
Insights in to Indian Stock Market Realities” (2009) attempts to guide investors into making wise investment decisions and
not be carried away by the noise of the markets. He speaks to us giving his views on the way forward for the MF industry and the necessity of having a well thought out financial plan.
Diwali greetings to you, Mr. Parikh and the entire PPFAS
family!
As
we enter a new year, what is your outlook on the economy?
We are not great economic forecasters. Since we recommend
investments for the long term, both good and bad economic outlooks would get
covered in a cycle.
At the moment things are looking good, especially with
crude oil and other commodity prices cooling off and a fall in inflation in
India. With oil prices coming off, it should also help in terms of keeping our
trade deficit under control.
This however cannot form the basis for near term
investment decisions. Geopolitics is unpredictable and the slightest trouble
and oil prices could head back up again.
What
is your advice to investors for the coming year(s)?
There are two kinds of
investments. Those that scare you and those that kill you and both are not the
same. The scare comes from volatility of the investment. This is in asset
classes like equities. The killing comes from the loss of purchasing power on
account of inflation. This is typically in asset classes like fixed income
securities.
The relative weights to the
two asset classes should come from a well thought out financial plan. Any money
that is not needed at least for five years should not be in fixed income
securities but rather should be in growth assets.
Mutual
funds still a sort of replacement product for FDs, gold, property...
One gram of Gold and the BSE Sensex were both at 100
around 35 years ago. Today, the same gram is Rs. 2,740/- whereas the BSE Sensex
is around 26,500. Need I say more?
We see peak retail investor interest for
equity funds almost coinciding with market tops. As markets hit highs we also
see a spate of NFOs / series of closed ended NFOs with the same theme. Is this
the way to grow the industry?
It clearly is NOT. What is needed is
- Eliminate sectoral funds. In my view they do more harm than good. Sure some sophisticated investors would miss them but the general public which buys tech funds at the time of the dot com boom and infrastructure funds in 2007 would be protected.
- Eliminate upfront commissions. This would reduce the allure of closed end funds and curb mis-selling.
- Encourage SIPs
According
to the fund’s August 2014 factsheet about 24% has been invested in
international securities. This is a huge allocation for a diversified equity
fund.
India's share of world GDP
is less than 6%. Hence 94% of economic activity is outside of India. Further,
some kind of sectors are almost absent in India. Things like IT product
companies, Internet businesses, Innovator Pharma companies, Shale Gas
companies, Payment system companies (like Mastercard / Visa).
When one invests overseas,
one gets additional diversification benefits which are beneficial to the
investor. Also we do not take a lot of currency risk as we hedge to the extent
of 90% of our currency position. This hedging activity also provides us
additional yield on the portfolio because of the futures premium.
We think that every investor should consider having a
portion of their investments into international stock. Doing it though a fund that
has a predominantly Indian allocation also gives tax benefits.
Do
you intend launching any other scheme – for e.g. an ELSS scheme?
As of now we do not have any plans of launching a new
scheme.
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