Regulations
SEBI bars Micro Leasing and Funding from fund raising

Micro Leasing and Funding as well its six directors, including three former directors are barred by SEBI from raising money from investors

 

Market regulator Securities and Exchange Board of India (SEBI) has barred Micro Leasing and Funding Ltd from mobilising funds from investors through issue of securities. SEBI also barred the company and its directors, including three former ones, from dealing in markets till further directions.

 

SEBI probe found that Micro Leasing and Funding had garnered over Rs58 crore from more than 50,000 investors through issuance of redeemable preference shares and through such activity had "prima facie" violated various norms.

 

"I am of the view that prima facie, Micro Leasing and Funding is engaged in fund mobilising activity from the public, through the offer of redeemable preference shares and as a result of the activity has violated the provisions of the Companies Act," SEBI Whole Time Member S Raman said.

 

Accordingly, SEBI has asked Micro Leasing and Funding to "not mobilise funds from investors through the issue of or through the issuance of equity shares or any other securities, to the public and/or invite subscription, in any manner whatsoever, either directly or indirectly, till further directions".

 

Further, the company and its directors --Upendra Nath Mishra, Bijoy Kumar Routray, and Durga Prasad Shadangi alongwith its former directors-- Durga Prasad Misra, Kali Prasad Mishra and Banaja Patnaik--are barred from issuing any offer document or advertisement for soliciting money from the public for the issue of securities.

 

The company and its directors, "are restrained from accessing the securities market and further prohibited from buying, selling or otherwise dealing in the securities market, either directly or indirectly, till further directions," the market regulator said.

 

SEBI observed that Micro Leasing and Funding's redeemable preference shares issue was made to over 50 persons which under the rules made it a public issue of debt securities and hence would require a compulsory listing on a recognised stock exchange. It was also required to file a prospectus, among others, which it failed to do.

 

In its interim order, SEBI said "there is no other alternative but to take recourse through an interim action against Micro Leasing and Funding and its directors for preventing that company from further carrying on with its fund mobilising activity under redeemable preference shares."

 

SEBI has also asked the entities not to dispose any of the properties or assets acquired by that company through the issue of redeemable preference shares, without prior permission from the regulator as well as not to divert the funds raised from public.

 

While asking Micro Leasing and Funding to provide a full inventory of all its assets and properties, SEBI has also asked the company to within 21 days from the date of receipt of the order submit all relevant and necessary particulars sought by the watchdog.

 

SEBI said that the company allotted 58.1 lakh redeemable preference shares to a total of 50,262 individuals and investors and mobilised funds amounting to Rs58.06 crore between 2010-11 and 2012-13.

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PPFAS Mutual Fund: How does this fund house set itself apart?

It does not launch new schemes to take advantage of the bull run and wants to be transparent and accountable to its unit holders

 

Challenging the status quo of the mutual fund industry, PPFAS Mutual Fund, promoted by Parag Parikh Financial Advisory Services, held its first unit holders meet in Mumbai on 22 November 2014. PPFAS MF previously held the Annual General Meeting (AGM) of its unit holders in Chennai and Bangalore. This was as another first by the fund house in the mutual fund industry. In Mumbai, PPFAS Asset Management chairman and CEO Parag Parikh and chief investment officer and fund manager Rajeev Thakkar presented their investment philosophy to the unit holders, after which, in an elaborate question and answer session, they replied to queries from their unit holders and distributors on the rationale behind selecting various stocks for the portfolio.

 

PPFAS Long Term Value Fund and the scheme has gathered a corpus of Rs500 crore, with around 2,900 unit holders, which is higher than almost 60% of the equity diversified mutual fund schemes in existence.

 

Enthused by the assets flowing in, most fund houses would have launched additional schemes to attract investors and increase their asset base. However, you will not see anymore schemes launched by the fund house as PPFAS Asset Management chief Parag Parikh, intends to have only one scheme, “so as not to confuse the investors,” he says.

 

In addition, this is one fund house, which has ‘skin in the game’. “I, my sponsor company, the AMC, the fund manager, the directors and most of our employees have invested in the scheme. Out of the total corpus of Rs512 crore, around 8% i.e. around Rs42 crore is from all of us,” says Parikh. “The only way to instil a sense of accountability is to ensure that the fund management team is investing their own monies along with those of the clients’,” he points out.

 

Thakkar elaborated on the investment strategy of the scheme. He said that governance is their topmost priority. They look at the promoter and management quality—those who are competent and passionate about their work. They look for high return on capital, low capital cost and low debt. Finally, they look to buy such businesses at a reasonable valuation.

 

Almost all the questions during the discussion revolved around why certain investments were present in the portfolio. Most investment managers would have dreaded such a situation when they are answerable to investors for investments, especially those investments that may have not worked out according to plan.

 

When asked about why certain investments had less than 1% weightage in the portfolio, as such investments would not make a significant impact to overall returns, Thakkar responded that it was not as they had intended. For example, MT Educare which has a weightage of 0.72% in the portfolio, was intended to be higher, but as they started to buy the stock, the price shot up by nearly 25%, hence, the attractiveness of the investment was lost and it remained at the tail end of the portfolio.

 

The scheme can invest up to 35% of its corpus in foreign investments. PPFAS Long Term Value has 25% of its assets invested in foreign stocks. When asked the rationale behind investing a high percentage in foreign stocks when there is a greater opportunity of picking high yielding stocks in India, Thakkar replied that the overseas stocks picked have an Indian arm as well, so in turn, they do get the benefit of the Indian businesses too. They have hedged the currency part of the portfolio to reduce currency risk.

 

With interest rates expected to decline, bond investments are expected to do well, at the same time the equity market is getting overvalued. One participant asked, why the scheme does not have a greater exposure to debt instruments, as over 90% of the portfolio is invested in equity. In reply to this, Thakkar mentioned that if he invests in bonds with a yield of say 9% now, he would have to time his exit when yields fall to make a higher return. If not, if he holds the bond until maturity, he will earn a return of 9%. Looking for short-term profits is not in line with the investment philosophy of the scheme, he said.

 

Equities are their area of expertise. If they see a long-term opportunity, they will continue to invest in equities. The moment such opportunities no longer exist; they can reduce the equity exposure to 65% of the portfolio. By investing in arbitrage opportunities, the long equity exposure can reduce further to 50% of the portfolio, Parikh said.

 

Towards the end of the discussion, Parikh explained why PPFAS Long Term Value does not have a dividend schemes. “Dividends are unethical. They give you the impression that you are getting something extra from the fund. However, you are not. The dividend is just your returns being given back to you,” he explained. There is also a behavioural angle to this. “When you get a dividend payout,” he explained, “you are likely to spend the entire amount on something unnecessary. However, if you had to redeem from the scheme before spending, you will think twice before redeeming, and will spend diligently.”

 

PPFAS may have instilled some amount of trust by providing accountability to their investors. In our analysis of portfolio management schemes, their PMS was among the best. Unfortunately, their mutual fund scheme, PPFAS Long Term Value, has not been among the best in comparison with other schemes. Many stocks are not the best in their class and hence are valued available cheap. Returns from them are unlikely to be high, especially since these stocks have not been able to prove themselves over multiple business and market cycles. However, this scheme is designed for the long-term and it would be too early to comment on the performance. In fact, Mr Thakkar mentions that they are not looking to be among the best, their only aim is to provide investors a decent return over the long-term.

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COMMENTS

Suresh Bisht

2 years ago

In my view it is a good fund. It is trying to position itself a different fund. Look at the Quantum Mutual fund. Its expense ratio is very low. It was criticized by everyone in the beginning and now everyone is recommending this fund.

Today, everyone talk about HDFC MF, ICICI Prudential MF and Birla MF. But nobody knows that these are not well performing in the beginning. They have several schemes and only few schemes performs. HDFC Top 200, HDFC Equity and HDFC Prudence are not HDFC Fund. They were Zurich India MF and ITC Threadneedle MF in late nineties. Prashant Jain was not fund manager of HDFC TOp 200 since beginging some foreigner was. Similarly, Birla Frontline Equity is the fund managed by Alliance Capital with its star fund manager Sameer Arora. ICICI Prudential had very bad past and it was known for unethical practices.

Now some of these funds are doing well.

What I am trying to say is we should give time to a fund. Stocks are selected by Fund Manager based on his/her skill. We are not fund manager who can dictate the fund manager to choose the stocks. Anyway most of the funds have similar stocks as they choose NIFY 50 or BSE 30 stocks. They will get similar returns. Unless someone tries to do things differently, result will not change. Again, there is no guarantee of success as stock markets are unpredictable and no fund manager including MONEYLIFE can predict about future. People can give comments, inputs, views, etc. It is easy to post mortem than to create a new thing.

If moneylife is always correct, then all other financial planners and different website will close their business. In my limited knowledge stock market works on different perceptions of market players and not same.

Nilesh KAMERKAR

2 years ago

If dividends are unethical . . . then redeeming units must be a sin.

Atif Rahman

2 years ago

I think that we should treat this Fund as Bank FD ...but with higher yield and no long term capital gain tax.
This fund will give decent returns and safety of capital..and hedge against inflation which most Indians crave.
Most of us should park a large part of our fund in this....
Disclaimer: I am happily invested in HDFC,ICICI,BIRLA mutual funds and diligently SIPing int the above..regards

gautham

2 years ago

I dont understand why so much hype for this fund. Not impressed with the portfolio quality. Look at this 4 year old video https://http://www.youtube.com/watch?v=CTIMDQy3EFg where they talk about noida toll, IL&FS, mphasis etc. Now they have given -ve returns even after 4 years. If 4 year not long term, then what is?. I hate to talk about price performance. But the price has followed earnings here. Value investing is not about buying low p/e stocks.

REPLY

Debashis Basu

In Reply to gautham 2 years ago

The "hype" is about the approach to investors in a world where financial consumers are regularly taken for a ride. The hype is not about the best performance. We agree with your about the portfolio.

As we have mentioned in the article: "Many stocks are not the best in their class and hence are valued available cheap. Returns from them are unlikely to be high, especially since these stocks have not been able to prove themselves over multiple business and market cycles. "

gautham

In Reply to Debashis Basu 2 years ago

Thanks Debashis. I agree to certain extent. (ie The fact that they have only 1 fund). But at the end of day, investors need returns also. Moreover their fund expense is also on the higher side. As you know, cheap stocks are cheap for a reason and they can get cheaper also. Even the div yield logic will go for a toss. Look at market cap erosion in noida and ilandfs for example. (from their peak)
(PS: I dont invest in equity via the mutual fund route)

Suketu Shah

In Reply to gautham 2 years ago

Agree with you.

Im sure moneylife mutual fund stocks published in their magazine leaves all mutual funds streets behind.

Debashis Basu

In Reply to Suketu Shah 2 years ago

Thanks for your endorsement :)

Suketu Shah

In Reply to Debashis Basu 2 years ago

Mr Basu

Most welcome,Statistics donot lie:)
have a nice weekend.

Vijaykumar Monu Talaulikar

In Reply to Debashis Basu 2 years ago

Mr Basu,

I do not have lumpsum amount for investment. But I can invest about Rs.5000/- every month. So what do you advise me in perspective of Moneylife foundation or so

Value Investing

There are many approaches to stock investing, one of the most popular being value investing....

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