Parag Parikh Mutual funds have set themselves apart from the conventional mutual funds since their inception. From investing strategies to customer-centric services, this mutual fund house has created a different image when compared to other funds. A sensible way to deal with high volatility is to invest in the investments which can cover more than one geography. A scheme that could offer the best of the two market geographies can be a good addition in a portfolio of a long- term investor. With a 65.5% of the portfolio invested in a well placed large sized or blue-chip companies in India and a 30% of the portfolio invested in companies listed on US stock exchange, Parag Parikh mutual fund is one of such schemes. They include companies with low debt ratios, high cash, investor-friendly management.
Who is Parag Parikh?
Parag Parikh was one of the first value investing pioneers in India. He had been popular among retail investors and his peers for his “You cannot sow something today and reap tomorrow” way for investing. His stock-picking methods inspired many mutual fund managers. In the year, 2015, Mr. Parikh passed away in a tragic car accident in Omaha, when he was en route to attend the Berkshire Hathaway investor meet.
Find out What is Value Investing ?
His mutual fund venture, the Parag Parikh Financial Advisory Services Asset Management Company, was once known for managing only one mutual fund: Parag Parikh Long Term Equity Mutual Funds. Presently, it manages a liquid as well as a tax saver mutual fund.
What is Parag Parikh mutual fund?
Parag Parikh mutual fund is managed by PPFAS Asset Management (PPFAS AMC) and promoted by Parag Parikh Financial Advisory Services Pvt. Ltd. The fund was launched in May 2013 and has a consistent performance in the Multi-Cap category.
The Value Investing Approach of the scheme makes it stand out as compared to other schemes. In value investing, companies are shortlisted based on their intrinsic value. This approach also outlines an important fact that if the fund manager finds the valuation expensive, he will increase the portfolio exposure to cash or arbitrage products. Investors who are looking to invest in Equity and portfolio returns that are stable this fund suits them perfectly.
The fund does not look for investment in a specific market that targets a set of specific investors. Instead, its top picks are generally well-known companies leading the markets like Google’s parent Alphabet Inc., Amazon.com Inc. and Facebook Inc. As per the fund manager Rajeev Thakkar, these companies are growing at fast levels and are valued cheaper than most of the Indian Companies. Hence, it is clear that PPFAS will make into your list of Which Indian mutual funds investing in foreign markets?
Investing horizon with Parag Parikh Mutual Fund
As discussed earlier, one of the main features that put this fund has edge over other Multi-cap funds is that investors can invest across market cap, sectors, and geographies. A fund can reduce the volatility of the scheme by having a mix of investments across geographies. It is a well-known fact that different countries go through different cycles and have performance cycles at different time frames. For example, the Indian markets performed better than the US during the period from 2000-2010, whereas in 2010-2020, US markets have performed much better than India. This type of multi-cap funds also potentially enables outperformance when one market is not doing well.
The Fund invests a minimum of 65 % of the fund’s corpus in India. Now one may wonder what this does? By investing a large portion of more than 60% of the fund’s corpus in India helps in the classification of the scheme as an Indian Equity Fund. Therefore, it is charged at the tax rate applicable to Indian Equity funds even though it has its corpus invested globally. Up-to 35% of the fund’s corpus can be invested across geographies but mainly the fund managers are currently restricting it to North America, Europe, and developed Asia which include global multinationals and well-known companies which the investors would be familiar with.
Global investors nowadays are asking investors to come to an emerging market like India because of the growth prospect in the emerging markets are much higher. However, the fund managers of The Parag Parikh Mutual Fund believe that the growth of a company or a fund depends on that sector and the size of the opportunity rather than its geography.
How is Parag Parikh Long Term Equity Fund?
Year to Year performance of the fund can be either higher or lower than Nifty 500 TRI. In the year 2017 when the broader market was performing well, Parag Parikh Mutual Fund was lagging the Nifty 500, however, in the year 2018-19 the broader markets saw a downturn and The Parag Parikh Mutual Fund scheme did well. So, it mainly depends on the time frame. The fund has done better in the last one, three and five years.
The table below depicts a few cases of sharp drawdowns for the Nifty 500 TRI from the chart. As per the table, the fall in fund returns is not as steep as that in the Nifty 500 TRI returns.
|Date||Nifty 500 TRI||Parag Parikh Long term Equity Fund|
Also, over a 5-year period, the fund has beaten the benchmark 100% of the times with the average outperformance being 2.1% points. As per the table below the fund has given a return of more than 5% over a period of 5 years.
Rolling Returns – Fund Vs Benchmark and Peers
|3-Year Period||5-Year Period|
|Parag Parikh Long Term Equity Fund – average rolling return||15.0%||15.4%|
|Nifty 500 TRI- average rolling return||13.7%||13.3%|
|Multi- cap fund category – average rolling return||14.4%||14.3%|
|Fund average outperformance over Nifty 500 TRI||1.3%||2.1%|
|Fund average outperformance over the multi – cap fund category||0.6%||1.1%|
|Percentage of time fund outperformed the Nifty 500 TRI||76%||100%|
|Percentage of times fund outperformed multi -cap fund category||61%||88%|
Note – Calculations take into account all 3-year and 5-year periods between May 2013 (fund inception) and December 2019.
Source: MFI Explorer and Funds India Research
We have already discussed how the fund structure works and what is the idea of the fund managers behind the investments across market cap, across sectors and across geographies. Let us discuss the pros and cons of investing in the Parag Parikh Mutual Fund Schemes.
Why Invest in Parag Parikh Mutual Fund ?
Global exposure diversifies risk
As the fund invests in value stocks across Indian and global companies which helps in diversifying the country-specific risk. It also gives investors the opportunity to invest in companies such as Amazon, Google, Facebook, etc. that may not have Indian counterparts.
Buy and Hold Philosophy
As the Fund follows a Buy and hold strategy, the fund held at least 41% of the fund’s corpus in stocks for at least 4 years. Also, with a low portfolio turnover ratio of 5.3% (excluding equity arbitrage) in December 2019, the fund reflects the approach clearly.
Experienced Fund Managers
The Fund is managed by Rajeev Thakkar (CIO and Equity Fund Manager) and Raunak Onkar (fund Manager for Overseas Securities). Rajeev Thakkar has an experience of over 18 years in fund management and is associated with Parag Parikh Financial Advisory Services from 2001 while Raunak Onkar is in charge of the overseas division since the inception of the fund.
The fund annually organizes the conference calls for investors. The Fund Managers also provide a brief explanation for certain investment decisions along with the fund fact sheet which includes a ‘note from CIO’.
Fund eats its own cooking!
To ensures accountability, the fund promoters and members of the fund management team also invest in the scheme. As of Nov-end 2019, 5.22% of the fund’s corpus was held by insiders, Parag Parikh Financial Advisory Services sponsor company, promoters, and key employees.
Why not to Invest?
Underperformance in bull markets
As the fund believes in value buying i.e. it buys stocks when they are trading at a discount and therefore may not invest in high growth stocks if valuation is pricey. The fund’s Upside Capture Ratio was 73% from May 2013 to Dec 2019 which is less than 100% indicates the underperformance of the fund when the markets were performing well.
When the markets are overvalued, and the good investment opportunities are less, the fund mainly holds cash. This may result in a missed opportunity if the markets show a performance when the fund is holding cash.
Long Term Investment Horizon
The fund managers pattern of buying is not based on what the trend is right now, they basically give importance to long term picture. Therefore, the scheme is suitable only for people looking at 5 year plus investment horizon. Also, any adverse effect on the Indian market is not reflected in the portfolio. So, investing in the fund may not be a right thing for the investors looking at one-year time period.
Should you invest now in this Fund?
Over the last two years, the fund has reduced the exposure to Indian Stocks. Compared to 65% in 2016, it came down to 60.9% in 2019 due to the higher market valuation of quality companies. Exposure to global markets and high cash levels has helped the fund to perform in a difficult Indian market without incurring a loss. Keeping all the above factors in mind, the scheme is best suited for the investors who do not want to lose their portfolio in the market volatility and are also looking to invest for a longer-term, at least for 5 years.
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