To match the scores of the DSP fund, the total of the funds given positive returns will need to double. Of the 11 funds in this category, six negative returns last year, according to the NPS Trust website of the pension fund regulator.
A closer look at the DSP’s fund reveals an interesting pattern. Compared to 3.86% of Kotak Mahindra Pension Fund, 8.75% of its portfolio was cash at the end of 2024, the second highest cash allocation fund. Although the average grade 1 NPS Equity Fund holds 70 shares, the fund has 27 positions.
In an interview MintRamneek Kundra, chief investment officer of DSP Pension Fund, said people should not come to his fund to see how it has performed in the past, because the 12-month time frame is too short to judge any equity fund.
Kundra said: “I wish I could talk about a longer record, but that’s all I have now.
You should outperform your competitors. Is cash pile helpful when the market rolls?
Cash calls are not the main reason for performance to surpass. In fact, it drags down our rewards. If you look at 2024 (January to December), the benchmark is BSE 200, up 14.72%. This is not a good thing when you hold cash and the market is going up. But even during that period, our fund gave 24.53%, the highest return of all NPS stock funds.
Personal stock choices are in our favor. I admit that the market has declined a lot recently and the degree of performance has increased significantly. In 2024 (January to December), our alpha is 9.81% compared to the benchmark. Alpha to Benchmark was almost 12% in the past 12 months after the market declined.
Having cash helps us because whenever the market falls, we can buy stocks at an attractive valuation, which helps to perform well. From the beginning, we hold about 7-8% of cash on average, because the rules say that our cash cannot exceed 10%.
I always remember that investors who are purely trying to surpass performance may be the first to leave in a difficult place. The market is not always friendly and we will certainly underperform at some point.
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Can you tell us some of your calls?
The benchmark fell by about 7% last month. As you can see in our Factsheet, we bought stock last month. Our cash level dropped from 8.6% in December and we will be about 6% in cash in February.
We did something similar with several leading private banks. When one of the reports has weaker results in December, Its stock price fell 15% in January 2024. Investors are worried Grow. But I think that after corrections, only 11-12% growth was priced, and the company has the potential to do better. We made this bank our biggest position at the time.
Three months later, the same story was repeated with another private bank. It also dropped 15% when the Reserve Bank of India restricted new digital and credit card customers. At that time, we ended up buying a large amount of stock in the bank. We were lucky enough to get a truly attractive valuation from both banks.
The trade-off of owning cash is that the market can rise and I may miss the gains. On the other hand, when the market falls, it allows us to buy businesses at a truly attractive valuation.
But if a choice is given and something similar to a Covid crash happens, then I want to deploy all the cash. But, before I find such an attractive potential investment, I have to be cautious and hold some cash. I also think our cash level is not high. It appears to be only the funding levels of several other funds relative to the cash level.
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The average NPS fund holds 70 shares. You have 27 positions. Why so concentrated?
You have met many people in your life, but few people you have met will get along well. If you meet 100 people, you may find 4-5 getting along with you. Of these, you may only find one or two that resonate with you.
We also consider stocks. It is often difficult to find opportunities you like. Last year, I was as confused as everyone else, looking at the valuation. When this happens, cash is the default location. The worries I encountered today are playing today.
Apart from cash, we will try to be more conservative anyway. Except for financial companies, only 3-4% of portfolio companies have debt. Our downlink capture rate is 59% and our uplink capture rate is 93%.
This means that when the benchmark drops 10%, we’re down 5.9%, and when the benchmark goes up 10%, we’re up 9.3%. We protect downward ways than grasping upward plans. We prefer to keep this way.
Please read also: How DSP’s Curious 10-Share Funds Arrives at Hritik Tune
The fund has good performance, but its performance is relatively new. Do you want to tell your investors?
You are right. I wish I could talk about a longer record, but that’s what I have now. I have been managing a regulated structure (first and now a pension fund) for less than three years, in DSP pension fund, before that, before that, before mutual funds, in 15 months in mutual funds.
I always remember that investors who are purely trying to surpass performance may be the first to leave in a difficult place. The market is not always friendly and we will certainly underperform at some point. This is a natural process of any disciplined investment method.
So, I think the right way to judge us correctly is not to focus on a year’s return, it’s the consistency of our adherence to our investment framework – based on conservatism, prudence and patience. We focus on buying businesses at reasonable prices and with a certain degree of safety, prioritizing downside protection and maintaining patients when opportunities are scarce.
You wrote an annual letter to some of your property. Very few stocks you mentioned are also held by PPFAS’s Flexi Cap program. Any ideas on this?
The principles we follow may be very similar. I learned everything from Warren Buffett and I’m sure PPFA did the same. As Buffett’s disciples, one person will end up being very similar, for better or worse, because we think in the same way.
When I returned to India from the US, I invested in Bajaj Holdings in my personal portfolio. I found that only one mutual fund holds the company-PPFA. I thought they did a great job, so I invested in their plans. I’ve been investing with them since then.
But I want to avoid copying someone’s portfolio. If there are stocks in their portfolio, I don’t know when they will enter and more importantly, when they will exit. However, I do track their portfolios because I respect them and I am an investor too. Comparing me to them would be a humble experience. Compared to their history, I have nothing to do with my record.
What do you think of NP as an investment vehicle considering the performance of the broader market?
NPS is a well-disciplined compound tool for tax incentives, but the attractiveness of its investment depends on market returns and asset allocation.
The only downside is the mandatory annuity of 40% at retirement, the annuity return does not match the long-term equity return, but the structure forces long-term investment, thus allowing investors to avoid reactionary sales during downturns.
Even after a volatility period, three-year rolling equity returns tend to compound 12-15%.
You are a relatively unknown fund manager and are managing your own money earlier. Why did you choose an investment career?
I wrote my Master of Integrated Marketing from New York University (NYU), but it has nothing to do with finance. I was intern at a startup I chose for Disney’s accelerator program. However, the company closed in a few months. I tried my luck in another startup, but this never got started. I returned to India in 2016 and started using the value investing principle to manage my family’s money. I took an online course on Value Investing at Columbia Business School.
The Taurus MF sponsor gave me a job. This is a small fund with AUMs around ₹650 million. At the peak, we generated nearly 8.9% of alpha compared to the benchmark. Around December 2022, DSP AMC CEO Kalpen Parekh provided me with this work.
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