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 value-centric Flexi Cap Fund known for its meticulous investment approach having a proven history of delivering impressive long-term wealth for its investors. The fund focuses on acquiring high-quality undervalued stocks with a significant margin of safety and enhances diversification by including select offshore stocks in its portfolio.

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 June 19, 2024
(Source: ACE MF, data collated by PersonalFN) 

Parag Parikh Flexi Cap Fund is a value-biased scheme within the Flexi Cap Fund category. It excels in identifying in high-quality stocks across large-cap, mid-cap, and small-cap segments with a preference for stocks available at reasonable and attractive valuations. Parag Parikh Flexi Cap Fund follows a strategic investment approach to build a high-potential portfolio of stocks to benefit from the available opportunities across sectors that could result in substantial capital appreciation in the long run. The fund also offers geographical diversification to its investors by holding a substantial portion of its portfolio in select global giants.

Parag Parikh Flexi Cap Fund employs a buy-and-hold investment strategy, allowing it to fully realise the value of each of its portfolio holdings. By seeking out value stocks with a significant margin of safety, Parag Parikh Flexi Cap Fund effectively manages to keep the overall volatility low. This disciplined approach, combined with its strong performance, has enabled Parag Parikh Flexi Cap Fund to deliver superior risk-adjusted returns for its investors.

Incepted in May 2013, Parag Parikh Flexi Cap Fund has a track record of over 11 years to its credit and has generated returns at a CAGR of 20.8% over this period. Moreover, it has managed to generate a significant lead over the benchmark and most of its peers across time frames, helping it become one of the prime contenders in the category. With a long-term track record of robust returns, Parag Parikh Flexi Cap Fund has become increasingly popular among investors, amassing a corpus of Rs 66,384 crore as of May 31, 2024, making it the largest scheme in the Flexi Cap Fund category.

An investment of Rs 10,000 in Parag Parikh Flexi Cap Fund five years ago would have appreciated to Rs 31,179, reflecting a CAGR of 25.5%. A similar investment in the benchmark Nifty 500 – TRI would have grown to Rs 24,635, at a CAGR of 19.7%.

How has Parag Parikh Flexi Cap Fund performed on a rolling return basis?

Scheme Name	Corpus (Cr.)	1 Year	2 Year	3 Year	5 Year	7 Year	Std Dev	Sharpe
Quant Flexi Cap Fund	6,272	37.62	22.14	34.27	27.58	22.37	18.16	0.35
HDFC Flexi Cap Fund	54,692	31.94	23.42	29.38	18.87	16.98	13.73	0.39
JM Flexicap Fund	2,472	43.20	25.23	28.78	21.30	18.46	14.94	0.44
Bank of India Flexi Cap Fund	992	40.19	20.57	28.71	—	—	15.91	0.37
Franklin India Flexi Cap Fund	15,468	31.15	18.12	25.57	17.99	15.51	13.78	0.33
Parag Parikh Flexi Cap Fund	66,384	31.50	16.15	24.01	22.35	20.05	12.48	0.34
Edelweiss Flexi Cap Fund	1,860	29.10	16.72	23.23	17.63	16.87	13.98	0.32
Union Flexi Cap Fund	2,052	27.78	14.70	22.09	18.26	15.54	13.36	0.28
Navi Flexi Cap Fund	250	24.81	14.88	21.35	16.52	—	13.82	0.25
HSBC Flexi Cap Fund	4,435	31.40	17.26	21.29	15.37	13.75	13.20	0.31
Nifty 500 – TRI		25.82	14.55	21.04	16.19	15.12	14.14	0.26

The securities quoted are for illustration only and are not recommendatory.
Returns are on a rolling basis and in %. Direct Plan-Growth option. Those depicted over 1-Yr are compounded annualised. Risk ratios are calculated over a 3-year period assuming a risk-free rate of 6% p.a.
Data as of June 19, 2024
(Source: ACE MF, data collated by PersonalFN)
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 consistently outperforms its benchmark and peers, establishing itself as a top contender in the Flexi Cap fund category. It ranks among the top quartile performers across various time periods, showcasing distinct outperformance compared to its benchmark and most category peers. Over the last 3-year, 5-year, and 7-year periods, Parag Parikh Flexi Cap Fund has delivered returns at a CAGR of approximately 24%, 22.4%, and 20.1%, respectively, on a rolling return basis. With this, the fund has generated substantial alpha over its benchmark Nifty 500 – TRI and has also outpaced most of its category peers. Even in the short term, Parag Parikh Flexi Cap Fund’s performance is remarkable, boasting an unbeatable track record on risk-return parameters.

With a Standard Deviation of 12.48%, the fund’s volatility is among the lowest in the category, significantly below the benchmark (14.14%) and the category average (14.13%). Furthermore, the fund’s Sharpe Ratio of 0.34 far surpasses its benchmark and the category average.

[Read: Flexi Cap Funds: A Sensible Choice That’s Attracting Investors]

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 invested about a third of its corpus in equity and equity-related instruments of offshore blue-chip companies (current exposure has reduced to about 14.4% of its assets).

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 is the reason why many of its stock holdings have been part of the portfolio for multiple years now.

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

Holding in (%) as of May 31, 2024
(Source: ACE MF, data collated by PersonalFN) 

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 popular large-cap names such as HDFC Bank, Power Grid Corporation of India, Bajaj Holdings & Investments, ITC, Coal India, Maruti Suzuki India, and ICICI Bank, among others, as of May 31, 2024. The top 10 stocks accounted for around 53.9% of its assets with these stocks being part of the fund’s core portfolio for multiple years now.

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. Alphabet Inc. is currently the fund’s largest foreign exposure (with allocation of about 4.1% of its corpus), followed by Microsoft Corp, Facebook, and Amazon.com.

Among domestic equities, ITC and Bajaj Holdings & Investment turned out to be the top contributors to the fund’s portfolio gains. Power Grid Corporation of India, Axis Bank, Motilal Oswal Financial Services, ICICI Bank, Multi Commodity Exchange of India, Zydus Lifesciences, and HCL Technologies are among other stocks that boosted the fund’s performance over the last couple of years. On the other hand, the fund booked profit in NMDC Steel, Tata Motors, Bank of Baroda, Canara Bank, Axis Bank, Bharat Petroleum, and Indus Towers, among others.

Nearly one-third of the fund’s portfolio is exposed to the Banking and Finance sector. Power, Mining, Consumption, Infotech, and Auto are among the other core sectors in the portfolio, highlighting reasonable diversification across cyclical and defensive sectors. The fund also currently holds exposure of about 14.4% to offshore equities.

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

Parag Parikh Flexi Cap Fund consistently outshines its benchmark, providing investors with substantial alpha over extended periods. The fund’s strategic approach across market caps and geographical regions allows it to maintain flexibility in response to the changing market sentiments. During market downturns, the fund strategically invests in undervalued stocks, positioning itself to capitalise on subsequent rebounds. Moreover, when valuations become excessively high, the fund proactively adjusts its holdings to navigate uncertain conditions.

Parag Parikh Flexi Cap Fund’s success hinges on its adherence to fundamental value investing principles and rigorous risk management practices. Led by seasoned fund managers, the fund prioritises the preservation of capital while seeking attractive investment opportunities. Parag Parikh Flexi Cap Fund is suitable for investors seeking a well-managed Flexi Cap Fund with the added benefit of diversification to offshore equities and having a long-term investment horizon of at least 5 to 7 years.

Watch this video to find out the best Flexi Cap Funds for 2024:

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. Registration granted by SEBI, Membership of BASL and certification from NISM no way guarantee performance of the intermediary or provide any assurance of returns to investors.

This article first appeared on PersonalFN here