Why global stocks were a big miss for PPFAS MF’s Rajeev Thakkar

According to Thakkar, the inability of the fund to add international exposure due to the overseas investment limits was a big disappointment last year. It was a big miss since certain stocks had corrected to attractive valuations.

In an interaction with Mint for the Guru Portfolio series, Thakkar shared what worked and what didn’t for his own investment portfolio over the last year. In this series, leaders in the financial services industry share how they are handling their finances and investments.

Asset allocation

Thakkar continues to be a heavy equity investor. He still has nine years to his retirement, which he says is still a fairly long-term investment horizon for his equity investments to deliver decent risk-adjusted returns.

As far his retirement corpus is concerned, Thakkar says he has already reached his target. To be sure, Thakkar still plans to work even after retiring officially. “I plan to keep working in some form or the other till my health permits as I enjoy doing what I do,” he points out.

About 95% of Thakkar’s investments are in equities. About 3-4% is in fixed income/debt and about 1% in gold. He says the gold is inherited—passed down the generations in his family.

Thakkar’s portfolio delivered overall returns of 43% over the last 12 months, driven by the sharp rally in stock markets.

Within his fixed income basket, Thakkar has replaced liquid funds with arbitrage schemes for better tax-efficiency. Arbitrage schemes get equity-like tax treatment, i.e. long-term capital gains are taxed at 10% after one year and gains of up to ₹1 lakh are tax-exempt. Apart from arbitrage funds, investments in employees’ provident fund and bank fixed deposits (FDs) make for the rest of his debt allocation.

On the other hand, debt funds no longer enjoy indexation benefit after tax changes in Union budget 2023. Capital gains are simply taxed at income slab rate of the investor.

As Thakkar’s portfolio is largely aligned to PPFAS Flexicap, his market cap split is 85% in large-caps, while 15% is in mid- and small-cap stocks.

Exposure to PPFAS MF

A large chunk of Thakkar’s allocation is concentrated in PPFAS MF. He says about 66% of his equity portfolio is in unlisted shares of PPFAS MF and 33% in Parag Parikh Flexi Cap Fund. About 1% is in other schemes. He says this large exposure to PPFAS MF was not part of any equity investment strategy. As he has been part of the key managerial group of the fund house, he has received employee stock options, which has made the fund house itself a significant part of his own net worth.

Thakkar even purchased more shares of PPFAS MF put on offer by other employees in 2022. He used his contingency fund for this. So, Thakkar’s contingency fund had come down to one year of expenses. However, now he has replenished it to two years of expenses, which is where he likes his contingency fund to be at.

Other investments

Thakkar doesn’t hold any alternative investments directly. He says the fund house tracks domestic companies in the unlisted space but this is done mainly to identify and examine companies that could be competitors to those in the listed space or those that have the potential to list in the markets.

Thakkar, who owns a house in Mumbai but does not consider that as investment, tracks real estate investment trusts (Reits) closely as 7.9% of Parag Parikh Conservative Hybrid Fund has exposure to Reits. But he says Reits are not as attractive as an investment proposition as they seemed last year. “In the last two-three years, interest rates have moved up sharply in the short-end, whereas yields on Reits have not increased to that extent. So, while Reits are quite interesting as an asset class, offering regular cash flows, potential of rent escalations, rising cash flows and some amount of capital appreciation potential, the sign-ups for Reits in terms of new customers or letting out more area has been a bit slow in the post-Covid environment,” he says.

Insurance

Thakkar has a small term insurance whose tenure is ending in about four years. “I am in my 50s and my daughter has grown up. Also, the accumulated savings will take care of the family and hence, life insurance coverage will not be necessary at this stage of life.

Both Thakkar and his wife have health insurance from their respective employers. “Our family (wife, daughter and himself) is covered by both our organization’s health covers. Over and above this, I have a small personal medical insurance. So, the total coverage for family is ₹23 lakh ( ₹20 lakh is employer cover and ₹3 lakh personal cover). There are no additional covers as the emergency fund is covering two years of expenses,” he says.

Family and finances

Thakkar’s wife is also a finance professional working in the MF industry but is on the risk-management side. Thakkar says his family is very well-aware of what is happening in his investment portfolio, but any investment decisions are largely left to him.

He says his daughter, who is now 19, has also become a keen investor and manages a small portfolio of her own. “Right since a young age, she has been a regular at our annual general meetings with unitholders. She is an avid reader and also regularly watches the investment-related content we put out on YouTube. She has already been to Berkshire Hathaway meetings multiple times, where she has had the opportunity to listen to investing greats such as Warren Buffet and Charlie Munger,” he says.