Welcome to a very important blog about the Parag Parikh Flexi Cap Fund. The very first is that we ran a poll to understand how many of you hold this mutual fund. I should be trying to make a blog and try to understand the performance of this mutual fund, Parag Parikh Flexi Cap Fund Direct-Growth, which is maybe bothering you all a lot!
Haven’t you seen the performance? Have a look at this; the underperformance can be very clearly seen. Now with this, I’m sure you have many more questions in your mind. The very first one is why are there negative returns. What is the effect of restrictions on foreign investments? And what should investors do now? To get answers to all of these questions, keep reading the blog until the end.
Why is the Parag Parikh Flexi Cap fund returning less than expected?
Now, in order to understand why this mutual fund delivered negative returns, We have to first understand what is the portfolio allocation of this fund. You will clearly know that 32.2 percent of the total portfolio allocation was only to the IT sector. There was still enough education for IT companies out of this 29.4 percent. But listed in the USA is something like Alphabet, Amazon, Microsoft, and Meta.
Now you understand how much of the portfolio was allocated to Meta specifically. It took almost six percent to understand whether it was because of this allocation. that the mutual fund is giving negative returns or not; for that have a look at these charts.
First, you can know that the Nifty IT index was down by almost 32 percent in the first half of the year. You can also know that NASDAQ 100 is down by almost 35 percent in a single year.
And have a look at the 62.6% decline in just one year. Now, if you have seen it—by which I mean if you have seen all these charts carefully. Do I really need to tell you that’s the reason for the underperformance? The answer is obviously Yes, but has this happened for the very first time? For that, have a look at this chart. You can very clearly see that in 2014 2016 and 2017, the blue bar graph represents Parag Parekh Flexi cap funds.
And you know that, especially in 16 and 17, it has not only underperformed the other funds in the category. But it has also underperformed the benchmark in 2019–2020 and 2021. When I consider the majority of those who invested in this mutual fund, I see that it provided positive returns. But, once again, 2022 was a year of underperformance, and not just underperformance, but also negative returns. But then the big question in everyone’s mind is: Did the fund manager just continue? And what about the state of the IT industry as a whole?
That’s not the case; he was definitely active during that time as well. Have a look at this chart so that you can understand the IT allocation.
As compared to 2021 versus 2022 you can see that 10 percent is the downfall in the IT allocation. They have increased the allocation in the finance space by almost 8.2 percent. To help you understand why finance may have been a preferred industry, as well as why finances in a sector are becoming a kind of favorite of many mutual fund managers, I hope the main question as to why negative returns have been answered properly.
What is the effect of restriction on Foreign Investments?
which is concerned with the impact of restrictions on foreign investment. what I’m talking about, but just in case you don’t know, let me try and explain it to you in just one sentence. which says that SEBI has banned mutual funds from investing in foreign equity. Okay, now you might have this question: Is this restriction forever?
The answer is no, there will be—I mean, of course, The government said he is basically going to lift this restriction. But, with negative returns and restrictions on investing in foreign equities, no one knows. There are these investors who are complaining about… and all that is now, I mean these are the various questions that these investors are concerned about.
So the very first thing that is bothering them is this underperformance. What has happened right now? Because of the restrictions that SEBI has put in place, I personally feel the answer is partial. Yes, because all these U.S. stocks that I refer to right now something like Meta, Alphabet, or Microsoft—have been tacked on by almost 30 to 40 percent.
Had mutual funds been allowed to invest fresh money in U.S. equities, they would have gotten an opportunity to average these costs at lower levels, but because of the restrictions, they had no choice but to just wait and see. Now for the second point that investors have, let’s try to understand the strategy or thought process of the fund manager.
| — Stock selection Filter Great promoters/management Great business High ROE Low competitors Asset Light Attractive Valuation |
| Parag Parikh Flexi Cap Fund |
While selecting various talks. Have a look at this; you can see that the fund manager filters the stocks based on great promoters, great management, and great businesses that have a high return on equity, And you can see a lot more important points.
Now if you have a look at the policy documents even today you will see that the basic policy still remains the same okay. Overall, I can say that the overall fund stock selection strategy has not changed, but one last point to consider is what happens if this overseas limit is never increased.
If you ask me, I think this is a hypothetical question ideally the limit will be increased one day or another, okay? But just in case if it does not increase, then we have to try and compare this with some other mutual fund. Which is again owned by the same fund house Parag Parekh fund house.
Have they delivered good returns or not, and have they outperformed the benchmark or not? Take a look at this chart for a better understanding. See that in the last year, the Parag Parikh Flexi Cap Fund Tax Saver Fund has given a return of 12.76 percent versus. The benchmark has given 10.2 percent and the additional benchmark has also been given 11.93 percent.
So with this chart, you can understand that this Tax Saver Fund is again part of the Parag Parikh Flexi Cap Fund. That has not only outperformed the Benchmark but it has also outperformed the additional benchmark also. Even if I talk about their Chief Investment Officer, he has been working as an equity manager for the last 20 years.
In one of the interviews, he said that it was okay, even if I have a very big career; recently, only he has started investing in U.S equities. So his hold over investing in Indian stock markets is also very good. I hope this answers all of your questions about the restrictions and the underperformance.
What should a business owner do? Should investors continue to put money into the Parag Parag Flexi Cap fund?
And on to the final question as to what an investor should do about this fund. But before I give you my answer, let’s wrap up whatever we have discussed so far. Number one, was there an underperformance in this mutual fund in the last year? The answer is obviously yes. Second, are they still in place? I mean, are the restrictions put in place by SEBI still in effect? The answer is again “yes.”
Is there still uncertainty as to when this ban will be lifted? The answer is again “yes.” And, finally, if I were to discuss the proven performance of another mutual fund from the same fund house—for example, the Parag Parikh Flexi Cap Fund Tax Saver Fund—does it exist? The answer is again “yes.” Now with this, should you stay invested in the mutual fund or should you quit it? Let us understand one or two more points.
Parag Parikh Flexi Cap Fund is one of the flagship mutual funds of this fund house, and the fund managers also have skin in the game what do I mean by that? They’ve invested their personal money into this mutual fund to the tune of 308.86 crore rupees. Even if you have looked at this image, you can see that the maximum amount of money is invested in this specific mutual fund, right?
Even if you have a look at this image is of the fact sheet, you can see the red bulla red circle Parag Parikh Flexi Cap Fund. which says that this scheme is suitable for investors who can remain invested for a minimum of five years.
Now if you had invested in this mutual fund Parag Parikh Flexi Cap Fund with the thought that you would need money in only one year, it would have fantastic returns. I will draw the money and use it for my goal, then you will definitely complain, and then you are left with no choice. However, if your goal is to mature in one year, you should book losses or make the smallest possible profit and exit the market.
This means you may have to book losses right now, but if you had read this and invested for a long-term goal, say five years or more, you could have avoided this. I think there is no need to worry because it is said that class is permanent and form is temporary, right? So this might be something like a temporary jerk that we are seeing in this mutual fund Parag Parikh Flexi Cap Fund, no need to worry about this.
But if you want to learn in a very systematic manner how to choose mutual funds, which will help you plan your investments better. So all in all to wrap up, I feel that you must understand that this has not underperformed for a large number of years. I’m still not sold! Parag Parikh Flexi Cap Fund’s direct growth has generated a CAGR of 15.52 percent in the last five years.
As compared to the Flexi Cap category average of just 9.05% and 11.08 by SNP BSC 500. So I hope by now you are totally convinced, and if you are a long-term investor, there is no need to worry. One more important disclaimer: this is not a sponsored blog because many of you said that we are already invested in the Parag Parikh Flexi Cap Fund mutual fund. That is the only reason why I thought I should write an article on this.
I hope all the queries about the Parag Parekh Flexi Cap Fund have been answered by the end of this article. If you enjoyed the analysis, please click the “like” button””Thank You.”