Six years after launching its first and only equity mutual fund (MF) scheme so far, PPFAS Asset Management is ready to launch its second equity fund, Parag Parikh Tax Saver Fund (PPTSF). It pales in comparison with some of the large funds who have launched many funds in the interim. ICICI Prudential Asset Management Co Ltd launched 62 equity-oriented schemes (open-ended and closed-end) that collectively garnered close to Rs 33,000 crore during their new fund offer stage as per data from Value Research. Sundaram Asset Management Co Ltd launched 59 schemes that collected Rs 4,809 crore, Reliance Nippon Life Asset Management Co Ltd launched 28 schemes that collected Rs 8292 crore, Aditya Birla Sun Life Asset Management Co Ltd launched 25 schemes that collected Rs 4182 crore, among many other fund houses that launched schemes in this period.
Why did it take so long for PPFAS AMC to launch its second equity fund? And will it be able to make a mark in the Rs 89,308 crore tax-saving MF scheme market?
The fund house has got the approval from the capital market regulator, the Securities and Exchange Board of India (Sebi), to launch its tax fund. PPFAS Asset Management’s CIO Rajeev Thakkar told Moneycontrol that the fund house would launch this scheme mostly in the first week of July 2019.
There are 36 equity-linked savings schemes (ELSS) or tax-saving MF schemes in the Rs 23 trillion Indian MF industry at present. Most of the fund houses have got atleast one ELSS scheme in their stable.
Back in May 2013 when it launched its first scheme, Parag Parikh Long Term Equity Fund (PPLTEF), the fund house said that it would not launch many schemes and that it would avoid the over-lapping of schemes. In 2018, it launched its second scheme, Parag Parikh Liquid Fund. And now the fund house is ready to launch its third scheme, a tax-saving equity fund. Is PPFAS a bit too late and isn’t the tax-saving fund already crowded?
“There wasn’t much scale in the initial years when we had launched our first fund. Most of our investors in our first equity fund had come to us from our own portfolio management services scheme, which we had shut down when we entered the mutual fund industry”, says Thakkar. PPLTEF had collected just Rs 152 crore in its initial offer back in 2013. That year, amidst depressed equity markets (the S&P BSE Sensex had returned about 9 percent), a total of 19 equity-oriented MF schemes were launched that garnered total of Rs 2,361 crore, as per data from Valueresearch. Thakkar said that a tax-saving fund launched at the time would have therefore collected a much smaller amount.
To be fair, the fund house has stuck to its word so far on not launching a fund that resembles its existing one. In the interim, it launched a liquid fund to help investors start a systematic transfer plan. This is a facility that allows investors to invest in first a liquid fund, and then, systematically transfer a fixed sum every month into an equity fund within the same fund house. And now comes PPTSFL: the tax fund.
PPLTEF has returned 13 percent over the past five-year period and around 14 percent over the past three-year period. The tax fund, of course, is a variant since it will offer section 80C tax deduction benefits (up to a limit of Rs 1.5 lakh). The question is: will its tax-saving scheme’s portfolio replicate that of its multi-cap equity fund? A fund house that has followed such an approach is Quantum Asset Management, one of India’s smallest fund houses with average assets of around Rs 1,423 crore for the quarter ended March 2019.
After its first equity scheme, Quantum Long Term Equity Value Fund (QLTV), its subsequent launches have been a liquid scheme, a gold fund and an exchange-traded fund. Quantum AMC launched its own ELSS in July 2009. Interestingly, it decided to mirror the portfolio of QLTV, instead of coming up with a new strategy.
“For QLTV, our aim was to invest for long-term. And we’ve always invested in liquid stocks. Such a portfolio is ideal for investors who wish to invest for 4-5 years. When we launched our tax-saving fund, we knew that these were the same qualities that a tax-saving equity fund investor would also look for. Hence, it made sense for us to have identical portfolios; Quantum Tax Saving Fund additionally offers section 80 C tax deduction benefits”, says Atul Kumar, head – equity funds, Quantum AMC.
Now, PPFAS AMC too will follow the same strategy, which is a similar strategy between its sole equity fund and its tax-saving fund. There will one difference though, between PPLTEF and PPTSF. The former has consistently invested around 20 percent in international equities. But according to the Central Board of Direct Taxes, an ELSS cannot invest in international equities; it must invest atleast 80 percent in Indian equities and the rest in debt and money market instruments.
Thakkar said that aside from international equities, the portfolios of both the schemes will look the same. Both funds will continue to remain as multi-cap funds. In simple words, both will invest across scrips and sectors.
Watch this space to know more about the new tax-saving fund once it gets launched.