PPFAS Financial Opportunities Forum

PPFAS mutual fund runs a discussion group called the PPFAS Financial Opportunities Forum - FOF.

At this monthly event, fund managers and analysts from the mutual fund make presentations.

In the most recent event (September 2023), they made a extremely insightful presentation on smallcaps.

I recommend you all watch it…and share your key takeaways.

My key takeaway was that the number of stocks on average in a smallcap mutual fund has increased implying that to deploy the flood of money coming into smallcap funds, the fund managers maybe going down the quality curve. This is scary since low quality mutual funds are the easiest way to destroy wealth.

The other ofcourse was that since smallcap funds are unlikely to return money, investors need to ensure their smallcap allocations are in line with their planned asset allocation.

Happy watching. Here’s the link -

Do share your takeaways!


First of all, what they are saying about over valuation of small cap funds and too much fund flow into small cap is worrisome. 30% funds are going to small cap while their market cap as well as profit pool is just 9% .So it means, 21% extra funds are getting pumped in small cap stocks. And they are not even counting the Smallcase as well as PMS of small cap.
We also need to see the commercial angle behind all this. They dont have a small cap fund. And their main competitors are not other flexicap funds but other small cap funds which are taking away their fund flows. So they have to find excuses to badmouth about small cap funds and small cap stocks.
Secondly we cannot ignore the awesome performance given by most small cap.funds, around 22-24% returns over a long period of 10 years. And this period includes all downturns and volatility. Still these funds gave very good returns. We cant take away this success from them. PPFAS are giving lame excuses for this.
If in future, they launch small cap.fund, they will have to eat all these words.
Also some points were good. I came to know why even after being multibagger , alkyl amines, Mold tek etc remain small cap only…Because their business model doesnot.permit them to become mid cap.or large cap.


Interesting perspective.

I wonder if the flood of money pouring into smallcap funds will have its consequences. Historically such episodes have indeed ended up in not so pleasant experiences for investors.

Are you seeing anything now that suggests this time is different?

Discl: never invested anything of significance in any smallcap fund, ever.

This time wont be different. If such high fund flows are into small cap, they will go down heavily with slight market correction. Howard Mark’s book about Market cycles indicate this very clearly. We are currently at peak of small cap funds rally. We need to exit small cap funs to save our profits and when picture becomes gloomy, then we need to re-enter. Small cap funds works like that only 2-3 years rally and then 1-2 years gloomy period. Small cap funds dont work like flexicap funds - secular growth. After watching this PPFAS funds , i redeemed my small cap funds investmemts partially and will go into flexicap at this juncture. That way this presentation was good for me. But i have not lost faith in small cap funds, only that i will return in gloomy period again.


I beg to differ with your point of view. PPFAS is probably the most honest fund house in the industry today and they are stating the facts. I don’t this they will bad mouth a segment of the market since they don’t have a fund in that space. Considering the loyalty they have today, they can easily launch a small cap fund may get 10K cr AUM at NFO itself. But they have been saying all along that they don’t launch products unless it provides a solution to the investors and stuck to their ethics for long.

The video posted here is presented at PPFAS FOF summit which is in existence from close to 10 years or so and the people who attend this are very savvy investors and probably some of them are in this industry for 20+ years. It’s a paid subscription and I doubt they would listen to something like that after paying for the service.

Disc : I am not an investor with PPFAS but an admirer of their ethics and the way they keep investor centric approach.


I also admire them and I am also their investor. I can take back my words, if I hurt your feelings in anyway. I always try to see the opposite point of view, even if it may appear absurd sometimes. I seek to challenge the popular beliefs at the cost of sounding devil’s advocate. But here I agree with most of their points. My only argument is that , we cant take away the success of small cap funds. We have to give the due, where it deserves.


Well yes, if one have the gut to hold - smallcap funds can give very high returns but the problem is volatility and possibility of no returns for prolonged period of time.

If you looked at smallcap fund returns at the end of 2013 or 2019 would have looked different.


Very insightful post guys. I have invested in SBI and Quantum small cap (recently looking at its performance). And in SBI small cap in my spouse’s MF portfolio.
If one can time these small cap MF investments, say entry during gloom and exit when they have 20-25% CAGR during long periods, this can give great alpha to our overall MF portfolio. Even long term approach for 10-15 years would work wonders. Investors who cant absorb volatility or loss should strictly stay away.


That is true! But the problem is most of us haven’t seen the volatility and downturn in smallcaps. They may be in downturn or sideways for 5-6 years which will test the patience. I haven’t seen anyone who investing in funds staying that long without redeeming.

So instead of having everything in smallcaps it’s better have optimum allocation across caps.

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Thanks for the post and discussions. I humbly want to share my experiences with different types of funds.If one takes the timeframe of 5 years, in most of the cases the small cap funds beat flexi cap and large cap with 2-3 percent at least. Only exceptions can be a particular fund going very bad or performing beyond expectations. I can suggest that the best way is stay invest in small cap funds (not in one fund),so that severe underperformance of one fund gets averaged out.Now market cycles have become smaller, so it doesn’t take more than five years.Even for PPFA, they suggest 7-8 years duration for good performance.Just to add a point,Motilal Oswal micro cap index fund (500-750) brochure mentions that on longer time scale micro cap index backtesting shows the return of 25%,although, it can be very volatile in the short run.As it is the single fund in that category we do not have other funds to compare.I hope honourable members will share their opinion in this regard.


Yes, completely agree with your POV. Only point I am trying to make is how many of us withstand 50% drawdown for a period of 1-2 years is the question if you are totally in smallcap funds

Yes, that has to be taken care of. I normally feel comfortable with around 30% in small cap, and well diversified among various fund houses to ensure at least average return. In the present circumstances, my decision so far is to pause the new investments, which will be resumed when there is significant correction (20-30%). But, no redemption. If the money is required, when market is down I will redeem debt funds, balanced advantage funds and then large cap if required. So far,I never had to go till large cap funds’ redemption. In all the cases, only debt and balanced advantage and balanced funds I had to redeem at the most ( in my journey of two decades with mutual funds). I rely on them a lot. My policy so far is be highly diversified in mutual funds as I am expecting here average return with minimum risk and do not watch it daily.On the contrary, in stocks,I believe in being highly concentrated watching every event and every movement as far as possible, as the expectation is high reward with the high tolerance for risk.

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what would you opine, in the present circumstances, for someone who is 95% in small cap stocks.
what approach would be suitable for 20% Annual return ?

95% is too high an allocation. I will suggest at least 35% should be moved to large and flexi cap,20% to mid cap and remaining 40% in small cap. It will ensure 20% annual return, as you will have 60% in pure mid and small cap, in addition to it some flexi cap funds may have good exposure in small and mid caps.It will minimise the risk as well.Of course, a lot depends on the individual’s specific circumstances.If someone doesn’t need money for next five years at all, then even the present allocation is fine. I have shared my allocation and approach (funds and stocks) as per my situation, as I am full into funds and stocks so I need to care of all sorts of financial requirements through this market. As mentioned in the last post, in last 20 years approx. I did not face any major problem, at the same time the growth has been satisfactory.


PPFAS’s view on small caps and small cap funds seems to be playing out almost flawlessly.

FYI, today is the next edition of the FOF. Focus area?

Artificial Intelligence.

Looking forward to it. If you are attending too, it will be great to catch up!


Keep updating the learnings

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Appreciate your view. PPFAS has a high reputation and it’s good to see a contrarian view.

However, from the presentation, I personally didn’t feel like they were bad mouthing small cap funds. In fact, if at some point they figure that investing in small caps is the best thing to do for PPFAS, they can easily move part of their flexi cap portfolio into small caps. I don’t think they have to start a small cap fund to do so.

On the contrary, I feel like they made many good points in favour of small caps. For example, how they pointed out that some segments are only available in small caps. Or how they most small cap MF’s have outperformed the small cap index. I think the presentation makes it clear that for the right investor who can handle the massive drawdowns, investing in small caps is viable.

Thank you OP for sharing the same.

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Respect your opinion. I personally felt that presentation came off a bit as giving justification for missing the bus. I say it because they were clearly ignoring the low base that many of these small caps offer atleast before the space ended up becoming a bubble.
They ended up owning mega cap IT stocks (like HCL and Tech Mahindra) instead of small/mid sized IT businesses which are still growing at good pace.
And some quality small caps do end up becoming midcaps (or even large) rather than staying small forever.
Nevertheless I continue to stay invested with them, because nobody can get it 100% right in the markets so long as they can keep the strike rate above average.

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That’s an interesting perspective and I can see your point. Thank you for sharing.

I stay invested with them too for two things. 1. Transparency and 2. Cleanliness of offering (low number offerings) and marketing. For the recent NFO of the arbitrage fund, they clearly said why they are launching it.

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Now Kotak Fellas too making a case to move to large caps.

They saying.
Correction in small-mid caps is still not complete, correction in their prices is relatively small compared to the rally.



Following may corroborate to earlier views of @StonePitbull
Based on few examples of PE below,
JSWEnergy ~ 41,HBL~ 60, Muthootcap ~ 7, Newgen ~ 43.6
IZMO~ 11, MSTC~ 13, Syrma~ 80, Tril~ 97
Suryoday bank~ 14, GSFC ~ 7, Lemontree~ 71
Aptus ~ 28, J&Kbank ~ 7, UgroCap ~ 35, Hudco ~ 9
NBCC~ 34, TimeTechno ~ 16, PDSL~ 33

“Pricey small/mid caps” may not be true for the pack as a whole ?


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