AN INVESTORS' GUIDE TO PORTFOLIO MANAGEMENT SERVICES IN INDIA

Your1. Invest in shares

2. Invest for the long-term

Thank you for downloading this guide. Being one of India's first SEBI registered PMS providers, we often come across common questions and concerns pertaining to Portfolio Management Services in India from our clients and prospects. This guide attempts to answer a few of these questions.... What Is a PMS or Portfolio Management Service or Portfolio Management Scheme? Portfolio Management Services, popularly known as PMS in India are akin to Managed Investment Accounts. They are different from mutual funds as each client's account is maintained separately and not clubbed together. A portfolio manager invests the money in shares and other securities and manages the portfolio on behalf of the client. Every portfolio manager has a well-defined investment philosophy and strategy that acts as a guiding principle. What are the advantages of investing in a PMS? PMS gives you access to competent professional money managers who constantly strategise to deliver consistent returns to you, keeping your risk appetite in mind. Also, the PMS provider usually provides investors with periodic audited reports on portfolio performance, capital gains etc. What are the major differences between a PMS and a Mutual Fund? As mentioned earlier, one of the main difference is that in a PMS product, each client's account has a separate identity. Hence different clients may have different investments/ proportion of investments depending on their entry into the scheme. Mutual funds, on the other hand, do not segregate accounts. They are unitised products wherein each client is allotted a certain number of units based on the extent of investment and the time of their entry into the scheme and the underlying portfolio is similar for all. Also, as per SEBI regulations, there are some investment restrictions for mutual funds : For instance, there is a maximum cap on the percentage of amount invested in an individual stock and/or an individual sector. . Once the fund manager reaches the maximum limit, he is forced to invest in some other stock or some other sector. That is why we see a large number of stocks in a mutual fund portfolio.

On the other hand, as a PMS is unfettered by such restrictions it can maintain a more concentrated as well as flexible portfolio. PMS schemes also have more flexibility to move in and out of cash as and when required depending on the market outlook.

Who should invest in a PMS or Portfolio Management Scheme? Any investor who is comfortable with the PMS manager's investment philosophy and has the requisite investible surplus can invest in a PMS product.

Who should not invest in a PMS? Speculators and other investors looking for quick returns or those wanting to time the market, may be better off trying their luck on their own.

What is the minimum lump sum investment required in a PMS? As per SEBI regulations, no PMS provider can accept a sum below Rs. 5 lakhs from a potential client. The actual number may vary depending on the PMS provider.

Can NRI's invest in an Indian PMS? Yes. For more details go to https://www.ppfas.com/products-services/nri/faq/

Our five principles for investment success.....

PPFAS is one of India's first PMS providers. Our investment philosophy and investing process has enabled us to give consistent benchmark-beating returns to our clients over the past 14 years. At PPFAS we abide by certain investing principles. These principles are also reflected in our approach to money management. We feel it is important for investors to comprehend these principles as it will provide insights into the way we function and enable them to understand our investment decisions : Principle No 1 - Invest in shares: Investing in shares is by far the most profitable route to profits in the long term. Stocks have a historical track record of outperforming other investment avenues like bank deposits, bonds, real estate, gold, commodities, etc. Investing in properly managed businesses through equity shares can deliver returns of around 15% per annum in the long term basis, compared to returns of between 8% - 9% for other modes of investment. Principle No 2 - Invest for the long-term: We feel that maximum profits are made in the stock markets by investing for the long-term; i.e. by not shifting in and out of stocks on a regular basis, but by investing in a good company and remaining there. There are analysts who advise "Book profits at every rise," and "Do not get attached to your stocks" and the like, but we do not subscribe to this theory. It is easy to see why this is so. Money compounds only over time. The power of compounding means that the longer you invest, the higher are your returns. Assume Rs 1 lakh doubles every five years. The first year you earn a lakh. This doubles to Rs. 2 lakhs in five years, Rs. 4 lakhs, the ten years and so on. Thus the major gains in your portfolio will be evident only after a sustained period of time, as your profits earn profits upon themselves. The more you hold on, the more money you make. An added advantage is that unlike interest earned from fixed interest instruments which is liable to tax year after year, the profit from investing in shares (under current Income Tax Regulations) is liable to be taxed at a preferential rate of 15% if sold within a period of one year from the date of purchase and not liable to tax at all if sold beyond a period of one year. In addition, the dividends earned, also do not attract income tax in the hands of the investor.

Principles 1 and 2 together ensure that investing for the long-term in shares is immensely more profitable than investing in any other instrument. A sum of Rs 1 lakh invested in bonds at 15% per annum grows to Rs 12 lakh after 25 years; the same Rs 1 lakh if invested in shares at 25% per annum becomes Rs 2.10 crores in the same period. Not investing in shares can be hazardous to your wealth. Principle No 3 - Keep cash and cash-equivalents: We do not consider the possession of a comfortable bank balance a cardinal sin. Through experience we have found that the performance of a portfolio does not suffer even if as much as 20 per cent of the portfolio is held in cash. Having cash on hand is an automatic hedging mechanism against the vagaries of the market. Secondly, when the market declines, as it will from time to time, the cash provides liquidity to invest in the right stocks at the right time. Never mind if you earn a little less interest on your cash deposits. The lost interest is more than made up for by having ready cash to buy a scrip at 60% below its intrinsic value in a depressed market.

Principle No 4 - Focus on the company; take advantage of the stock market: In all the history of investing, there has not been a man who could time the market with any degree of precision, for an extended period of time. The market will rise and the market will fall - it will behave pretty much as it wants to behave. So we do not attempt to time the market. Instead, we try to take advantage of it by focussing on the long-term intrinsic value of a company. In a falling market, as the stock price falls, companies with attractive long-term fundamentals get cheaper and cheaper. We keep cash handy and jump in the midst of pessimism. We attempt to be greedy when others are fearful, and fearful when others are greedy. The market exists not to be timed, but to be taken advantage of. In line with our philosophy of investing for the long-term, we try to buy the shares of the best companies, Companies which: Operate in the most profitable sectors of the economy Have favorable long-term growth prospects Are operated by honest and competent people Are available at an attractive price. The aim is to ensure that the bulk of the portfolio is made up of world class companies that operate in non-cyclical industries and can sustain above-market rates of earnings growth. Principle No 5 - Have a small and focussed portfolio: We do not believe that diversification beyond a point yields any substantial benefit. It is statistically proven that after diversifying into 10 to 15 stocks, further diversification does not reduce risk any further. In fact, in an unnecessarily diversified portfolio, only a small percentage of stocks end up yielding good returns without any concurrent reduction in risk. We believe that risk does not emanate from a lack of diversification; it emanates from a lack of knowledge and a lack of experience. It is our desire to systematically get our clients invested in a few world class companies that can provide maximum appreciation in the long run.

Our investing experience also leads us to believe that it is imperative to be invested in the right sectors, rather than spreading one's investments all over the place. We have found that the best industries to invest are ones which do not require periodic capital infusions, have high return ratios and display low earnings volatility. Although traditional 'defensive' sectors such as pharmaceuticals, FMCG and large-cap IT companies, usually fall under this category, we are not averse to investing in cyclicals (both domestic and global) if the valuations are compelling. We are also more comfortable investing in globally competitive multinational companies, which have more efficient operations, transparent policies and better accounting practices For illustrative purposes, the chart below shows the price performance of TISCO and HLL since January 1991. Though there were short periods when TISCO outperformed HLL, over the long term investors in HLL made fifteen times the money investors in TISCO did.

Through "Cognito" we attempt to structure your portfolio to include companies which operate in the right industries, have an honest ethical management and the capability to last. There may be times when stocks in a particular industry catch the fancy of the market and register large gains. Though we may make attempts to identify and take advantage of such short-term trends the bulk of our time and energy will be directed towards identifying long term trends that can generate above-average returns over a period of time and we will attempt to get our clients invested in such companies at the right time at the right price.

PPFAS
ABOUT US: Parag Parikh Financial Advisory Services Ltd. (PPFAS) is an Investment Advisory Firm formed in 1982, which follows a philosophy which focuses on doing the right things rather than merely doing things right. We also believe that monetary rewards do not take precedence over an ethical approach to our work. Our employees, who are aligned with this philosophy, are our greatest assets. The ability to accept change and imbibe new ideas and concepts underlines the culture at PPFAS.

WHAT SETS US APART: The application of concepts of Behavioral Finance (an emerging science that studies human behaviour toward money matters, by linking psychology to finance) forms the core of our business model. Leveraging on its strength of investment research, PPFAS launched its flagship Portfolio Management Scheme titled Cognito in 1996. We are among the first SEBI registered Portfolio Managers in the country. The credo of our Portfolio Management Division has always been "We create high net worth individuals. We do not chase them". OUR ACCOMPLISHMENTS: We were the first Member of a Stock Exchange in South Asia to start formal equity research with a dedicated department way back in 1985. Financial Advisory Service Company among Indian Stock Brokers to start Portfolio Management Services in Equities. To start a portfolio management service for Mutual Funds in India. The first retail client based financial advisory service to continuously evaluate, rank and monitor mutual funds performance to design and maintain a active mutual fund portfolio - March 2001. Indian Stock Broker to intensively study, originally research and practically apply 'Behavioural Finance' - (an emerging science that studies human behaviour towards money matters, by linking psychology to finance) with actual investment

strategies in the Indian Capital Markets. OUR CLIENTS SAY : ''My experience with PPFAS Ltd is positive in every aspect. For me transparency in dealing, professional advice are the most important criteria for choosing a financial advisor. I am glad that PPFAS fits the bill. Their service and client relationship has been above par.'' Anuj Tipnis Director - IT, PIDILITE USA INC. ''During my association with PPFAS, their wealth management team has changed my outlook towards investments completely. They do not just simply advise on equity or funds, rather they get you a financial plan, making place for asset allocation, defining my insurance requirement and making a retirement plan for me. Their team is friendly and approachable and their advise is never motivated by commissions. Neither is the service level related to size of investments. Today I am much more relaxed about money matters, thanks to team PPFAS.'' Jagdish Jagani Businessman Read More at: https://www.ppfas.com/about/testimonials/

If you like our approach to investing and are interested in knowing more.... Please contact either of us for a FREE Consultation : Jayant Pai jayant@ppfas.com | 91-22-61406523 Ext. 219 OR Neil Parikh neilparikh@ppfas.com | 91-22-61406526 Ext. 206