Welcome to  PersonalFN’s weekly analysis on diversified equity mutual funds! In this issue, we have analysed Parag Parikh Flexi Cap Fund, highlighting its performance, peer comparison, investment strategy, fundamentals, portfolio, and suitability.

Parag Parikh Flexi Cap Fund is a well-managed Flexi-cap fund having a history of creating solid wealth for its investors at a reasonable risk. With a hint of a value-style approach, it focuses on investing in undervalued stocks available at a decent margin of safety and offers diversification to offshore stocks as well.

What is the growth of Rs 10,000 invested in Parag Parikh Flexi Cap Fund five years ago?

Past performance is not an indicator of future returns
Data as of November 08, 2023
(Source: ACE MF, data collated by PersonalFN) 

Launched in May 2013, Parag Parikh Flexi Cap Fund has a flexible investment mandate that allows it to invest dynamically across large-cap, mid-cap, and small-cap stocks. However, its orientation remains more towards the value style of investing, whereby it aims to invest in quality stocks available at reasonable or attractive valuations. What differentiates Parag Parikh Flexi Cap Fund from the rest is that it offers offshore diversification, along with its pre-dominant to domestic equities.

[Read: All You Need to Know About the New Flexi Cap Category under Equity Mutual Funds]

Under normal circumstances, Parag Parikh Flexi Cap Fund invests up to one-third of its corpus in stocks of offshore companies. However, due to the breach in the overseas investment limit at the industry level, the fund’s allocation to offshore equities has shrunk to below 20% in the last couple of years.

The fund follows a buy-and-hold investment strategy to derive full value from each of its portfolio holdings. Its focus towards value stocks available at a decent margin of safety has helped the fund keep the overall volatility low, while the above-average performance has helped it generate superior risk-adjusted returns for its investors. An investment of Rs 10,000 in Parag Parikh Flexi Cap Fund five years back would have more than doubled to Rs 27,396, at a CAGR of 22.3%. A similar investment in the benchmark Nifty 500 – TRI would have grown to Rs 20,402, at a CAGR of 15.3%.

Following a cautious investment strategy, Parag Parikh Flexi Cap Fund limits the downside well during bear market phases and has been an above-average performer during bull markets. This strategy has rewarded its long-term investors over the complete market cycle, thereby generating substantial alpha over the broader market index.

How has Parag Parikh Flexi Cap Fund performed in the past?

Scheme Name Corpus (Cr.) 1 Year 2 Year 3 Year 5 Year 7 Year Std Dev Sharpe
Quant Flexi Cap Fund 2,163 14.05 11.97 33.90 25.49 20.85 18.87 0.39
HDFC Flexi Cap Fund 39,794 16.80 14.78 30.93 17.44 15.85 16.59 0.43
JM Flexicap Fund 718 26.13 14.47 29.46 20.36 17.18 16.06 0.42
Franklin India Flexi Cap Fund 12,141 17.60 9.31 26.91 17.35 14.68 16.10 0.38
Parag Parikh Flexi Cap Fund 44,038 25.33 8.46 23.67 22.29 19.20 12.76 0.38
Navi Flexi Cap Fund 236 14.67 7.94 22.40 16.61 14.83 0.33
Edelweiss Flexi Cap Fund 1,325 13.40 7.71 22.38 16.76 15.41 14.75 0.33
Union Flexi Cap Fund 1,634 15.47 6.71 22.34 17.79 14.47 14.38 0.33
PGIM India Flexi Cap Fund 5,816 9.92 1.76 21.26 19.88 16.57 15.59 0.30
DSP Flexi Cap Fund 9,150 17.40 5.26 20.88 17.83 14.85 16.04 0.30
NIFTY 500 – TRI 11.52 6.60 21.05 15.30 14.22 15.12 0.30

The securities quoted are for illustration only and are not recommendatory.
Returns are point to point and in %, calculated using the Direct Plan-Growth option. Those depicted over 1-Yr are compounded annualised.
Data as of November 08, 2023
(Source: ACE MF)
Please note, this table only represents the best-performing funds based solely on past returns and is NOT a recommendation. Mutual Fund investments are subject to market risks. Read all scheme-related documents carefully before investing. Past performance is not an indicator for future returns. The percentage returns shown are only for indicative purposes.

Parag Parikh Flexi Cap Fund ranks among top quartile performers across most time periods and has displayed a stark outperformance vis-a-vis its benchmark and most of its category peers. Over the last 3-year, 5-year, and 7-year periods, the fund has delivered returns at a CAGR of around 23.7%, 22.3%, and 19.2%, respectively. With this, the fund has generated substantial alpha over its benchmark Nifty 500 – TRI and has also outpaced most of its category peers. Even the short-term performance of the fund is remarkable.

Moreover, Parag Parikh Flexi Cap Fund holds an unbeatable track record on the risk-return parameters. With a Standard Deviation of 12.76%, the fund’s volatility has been among the lowest in the category and is far below the benchmark (15.12%) and is one of the lowest in the category. Moreover, the Sharpe Ratio of the fund at 0.38 is currently among the highest in the category and much ahead of its benchmark. Parag Parikh Flexi Cap Fund clearly stands out among Flexi Cap Funds with the potential to deliver superior risk-adjusted returns for its investors.

[Read: 7 Top-performing Flexi Cap Mutual Funds with High Returns on 10-Year SIP]

[Read: Best Flexi Cap Mutual Funds to Invest in 2023 – Top Performing Flexi Cap Mutual Funds in India]

What is the investment strategy of Parag Parikh Flexi Cap Fund?

Parag Parikh Flexi Cap Fund seeks to generate long-term capital appreciation from an actively managed portfolio primarily of equity and equity-related securities. Its investment universe is not restricted to any specific sector, market capitalisation or geography. Other than domestic equities, the fund has the flexibility to invest up to 35% of its assets in foreign securities. At times the fund has invested about a third of its corpus in equity and equity-related instruments of offshore blue-chip companies (current exposure is nearly 16% of the corpus). However, an average of 65% of its corpus needs to be invested in listed Indian equities, in order to benefit from the favourable Capital Gains tax treatment accorded to domestic equity schemes.

While picking stocks for the portfolio, the fund managers follow an active investment strategy primarily based on a fundamental research-driven bottom-up stock selection approach. They focus on key parameters like growth opportunities, sustainable competitive advantage, industry structure, margins, quality of management, and protection of minority shareholders.

The fund managers give high importance to the intrinsic value of the business and endeavour to purchase stocks that represent a discount to this value in an effort to create value for investors, maintain a margin of safety, preserve capital, and generate superior growth. They carry high conviction and keep a pure long-term focus on each of the stock holdings in the fund’s portfolio. That’s the reason why many of the stocks have been part of the portfolio for multi-years now.

What are the top portfolio holdings in Parag Parikh Flexi Cap Fund?

Graph 2Graph 2

Holding in (%) as of October 31, 2023
(Source: ACE MF) 

Parag Parikh Flexi Cap Fund makes its investments with a long-term perspective and follows a buy-and-hold investment strategy, to realize the full potential of the stocks it has bought in the portfolio. Among domestic equities, the fund held top exposure in HDFC Ltd. (7.9%), Bajaj Holdings & Investment (7%), ITC (5.9%), Axis Bank (5.3%), and HCL Technologies (5.2%), as of October 31, 2023. These stocks together accounted for around 31.3% of its assets.

What differentiates Parag Parikh Flexi Cap Fund from other Flexi-cap schemes is its exposure to foreign companies which offers an element of diversification benefit to the investor’s overall portfolio. Microsoft Corp is currently the fund’s largest foreign exposure (with allocation of about 5% of its corpus), followed by Alphabet Inc. (4.4%), Amazon.com (3.4%), and Facebook (3.4%).

Among domestic equities, ITC and Bajaj Holdings & Investment turned out to be the top contributors to the portfolio’s gains, along with Power Grid Corporation, Axis Bank, Multi Commodity Exchange, ICICI bank, HCL Technologies, and ICRA boosted the fund’s performance over the last couple of years. On the other hand, the fund booked profit in Kotak Mahindra Bank, Ashok Leyland, and Sun Pharma, among others.

Banking and Finance together account for 31.9% of its assets, followed by Infotech, Mining, Power, Consumption, Auto & Auto Ancillaries, and Pharma among others. Currently, about 15.9% of PPFCF’s portfolio is exposed to offshore equities.

Is Parag Parikh Flexi Cap Fund suitable for my investment goals and risk tolerance?

Parag Parikh Flexi Cap Fund’s focus across market caps, sectors, and geographies enables it to remain flexible enough to deal with the changing market sentiments. During tough market corrections, the fund focuses on buying beaten-down stocks, thus positioning itself to capitalise on the recoveries. Furthermore, if valuation soars beyond acceptable levels, the fund takes proactive measures to deal with uncertain conditions. Parag Parikh Flexi Cap Fund is well equipped to manage market volatility as it has done successfully in the past.

Parag Parikh Flexi Cap Fund’s bet on fundamentally sound undervalued stocks has benefited the fund so far. More importantly, the fund management gives a high preference to safety over returns and does not compromise on the risk aspects to generate higher returns. With experienced fund managers at the helm, the fund seems to be in capable hands.

Value as a strategy deserves patience. Although there may be bouts of underperformances and the returns may not come in easily, Parag Parikh Flexi Cap Fund is well-equipped to reward investors over the complete market cycle.

Parag Parikh Flexi Cap Fund is suitable for investors looking for a cautiously managed Flexi Cap Fund with the flexibility to offer some diversification to offshore equities with a long-term time horizon of at least 5 to 7 years.

Note: This write up is for information purpose and does not constitute any kind of investment advice or a recommendation to Buy / Hold / Sell a fund. Returns mentioned herein are in no way a guarantee or promise of future returns. As an investor, you need to pick the right fund to meet your financial goals. If you are not sure about your risk appetite, do consult your investment consultant/advisor. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.

This article first appeared on PersonalFN here

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