Coinciding the launch of Parag Parikh Dynamic Asset Allocation Fund (PPDAAF) NFO yesterday (21st February, 2024), Neil Parag Parikh, CEO of PPFAS Mutual Fund, sent out a letter to existing investors. In the letter, Neil explained how the new scheme provides indexation benefit to investors.

Neil said PPDAAF aims to invest a minimum of 35% and a maximum of 65% in equities, including arbitrage positions. The remaining amount will be invested in debt securities of different maturities. By doing so, the scheme will become eligible to receive indexation benefit.

“PPDAAF is a Scheme which aims to invest a minimum of 35% and a maximum of 65% in equities (which will include arbitrage positions). The remainder will be invested in debt securities of varying maturities. In doing so, investors in this Scheme will be eligible to receive indexation benefit, thereby helping reduce the amount of capital gains tax outgo, in case they sell their units after holding them for at least three years,” he wrote to investors.

Will PPDAAF keep mechanically changing equity allocation?

Neil said some may believe that the fund will mechanically keep changing the equity allocation based on valuation metrics like P/E ratio etc. “Actually, that is not the case.”

This fund may actually invest only up to 35% of its portfolio in equity.

“While we have the freedom to go upto 65%, we envisage the equity allocation to be closer to the 35% threshold. This means that the Net Asset Value (NAV) of the Scheme will be less prone to volatility on account of fluctuations in the equity market,” he said.

According to the CEO’s letter, the stocks selection will be basis parameters like strong cash flows. However, the stocks once purchased will remain in the portfolio till the the fund manager finds a good reason to sell them.

The fund will also avail of “special situations” as well as arbitrage opportunities, whenever they arise.

Also Read: Is it good or bad to invest in a New Fund Offer (NFO) of mutual fund?

Who may invest?

According to the CEO, this fund may be “ideal” for those desiring debt allocation with indexation benefits and those who avoid actively trading in debt securities.

In the letter, Neil also reminded investors that PPFAS AMC doesn’t launch schemes indiscriminately. Further he said the AMC considers a new scheme only if it meets the investment objective of a certain set of investors and second, when many members of the PPFAS Mutual Fund are also interested in investing in such fund.

Disclaimer: The above content is for informational purposes only, based on PPFAS Mutual Fund CEO’s letter to investors. The 1% News recommends consulting a SEBI-registered financial advisor before investing in any mutual fund scheme.