I’m often asked by my friends and relatives to advise or rather assist them in choosing a right mutual fund to start with! Typically, my answer is that there’s a universe of funds available and each fund from a fund house caters to different needs and financial goals of an individual/family. One needs to first fully understand his or her own requirements before deciding which fund to put the hard earned money in.
It’s been a long journey for me as an investor investing in mutual funds and I certainly believe that no matter what age category you are in, and at what stage of life you are, if you can outline your goals, and if you do not want to dive in equity markets (risky assets), one or the other mutual fund would fit your requirement and in the long run would prove to be a good hedge again inflation if nothing else. The bottom line is choosing the right fund!
For starters, please bear in mind, while investing in Fixed Deposits is a time tested, principal protection conservative approach, but please do not get influenced by it. In this approach, you end up losing more than gaining because in the background, the silent killer – inflation is constantly working resulting in effectively yielding negative returns!!! Principal protected? Think twice!
Today, I talk about an excellent fund from Parag Parikh stable by the name, Parag Parikh Flexi Cap Fund. Please note that the same fund was earlier called, Parag Parikh Long Term Equity Fund. It is a long term investing fund, particularly very useful for young investing population, college pass outs, working professionals, house-wives and even the seasoned players. All these types of investors have limited risk taking capabilities but sufficiency of time at disposal to allow unleashing the power of compounding.
Why I like this fund?
Legacy with a taste of Global Portfolio
Parag Parikh Flexi Cap Fund (PPLTVF), in its truest sense is a Value investing fund with a good time horizon of at least 5 years to be kept in mind. For majority of us, the world of Equity investing is a distant dream, or rather a nightmare. PPLTVF is an open ended fund investing almost 96% in Equities and remaining 4% in debt instruments/time deposits.
Why multi- cap? This fund gives the freedom to the fund manager to invest in all sorts of different sized companies with different market capitalizations to maximize the returns.
The biggest plus point for me is that it comes from the legacy of Late Sh. Parag Parikh who has been a stalwart at Value Investing in his own unique style.
Have you ever felt the urge to invest in companies like Google, Facebook, Microsoft, Amazon etc.? Well here’s the answer to all your prayers. While PPLTVF invests majority of its funds in domestic markets (over 65%) , it also invests in top global star companies of the world to the extent of 30% of the total portfolio i.e. foreign equities. Hence, for me as an investor, it gives me the flexibility to invest how much I want, it also caters to fulfill my desire to invest in Global MNCs and also gives me the exposure to Equity markets passively for achieving my long term goals. The fund has been very stable in foreign equity allocation and includes the global stars – Google, Facebook, Microsoft, Amazon and Suzuki Motor Corp (Japan) as on March 2021.
Another important point of consideration is the Sortino Ratio for this fund. For me, in Mutual funds, the two ratios that are of particular important are Sharpe and Sortino ratios. I particularly like Sortino Ratio more between the two as it helps one to assess the excess returns generated over a minimum acceptable return instead of generating excess return over a risk free rate used in Sharpe ratio. Also, the Sortino ratio penalizes the returns on the downside while Sharpe ratio takes the variability or deviation on both upside and downside returns. PPLTVF has a Sortino ratio of 0.91 which is way high when compared to 0.53 of BSE 500 Total Return Index (comprising of all sorts of companies with varied market capitalizations i.e. small cap, mid cap and large caps).
Let’s look at the returns generated by this fund:
The trailing returns of this fund in comparison to peers and BSE 500 TRI as on 12th and 13th April 2021 are given as below:
As one can see, the fund has generated 18%-20% returns in long time horizons and has been consistently beating the TRI Index and other flexi cap funds.
To further update on the kind of stocks held in the portfolio, please see the disclosures as on March 2021:
|Name of the Company||Industry||Quantity|| Market value|
(Rs. in Lakhs)
|% to NAV|
|ITC Ltd.||Consumer Non Durables||3,11,21,502||68,000.48||8.31|
|Bajaj Holdings & Investment Ltd.||Finance||18,29,286||60,239.30||7.36|
|Indian Energy Exchange Ltd.||Capital Markets||1,47,35,528||49,039.84||5.99|
|Persistent Systems Ltd.||Software||23,89,036||45,918.47||5.61|
|Hero MotoCorp Ltd.||Auto||13,13,871||38,280.95||4.68|
|Multi Commodity Exchange of India Ltd.||Capital Markets||24,92,885||37,716.10||4.61|
|HCL Technologies Ltd.||Software||26,00,820||25,556.96||3.12|
|ICICI Bank Ltd.||Banks||41,36,988||24,081.41||2.94|
|HDFC Bank Ltd.||Banks||15,79,309||23,589.35||2.88|
|Axis Bank Ltd.||Banks||33,69,094||23,497.75||2.87|
|Central Depository Services (I) Ltd.||Capital Markets||32,58,963||21,380.43||2.61|
|Balkrishna Industries Ltd.||Auto Ancillaries||12,26,855||20,715.45||2.53|
|ICRA Ltd.||Capital Markets||4,22,587||13,818.59||1.69|
|Oracle Financial Services Software Ltd.||Software||4,17,679||13,361.34||1.63|
|Dr. Reddy’s Laboratories Ltd.||Pharmaceuticals||1,88,325||8,504.76||1.04|
|Cadila Healthcare Ltd.||Pharmaceuticals||18,90,050||8,333.23||1.02|
|Sun Pharmaceutical Industries Ltd.||Pharmaceuticals||13,76,500||8,228.72||1.01|
|IPCA Laboratories Ltd.||Pharmaceuticals||2,36,663||4,505.47||0.55|
|Computer Age Management Services Ltd.||Capital Markets||56,152||1,036.79||0.13|
As one would see, the fund comprises of marquee companies from Indian diaspora.
So overall an excellent fund to start with for a first-time investor.
Please note that the basic principle behind investing in mutual funds is the concept of cost averaging and not timing the market and to start small to make it big one day. Accordingly, one can start investing in this fund with a small amount of Rs.1000 on a monthly SIP basis and can continue to increase the quantum with improving disposable income and individual conditions.
Also note that over long term this fund has the capabilities to generate decent returns but then every reward is associated with a risk. No risk means no reward. Please do bear in mind that the investments in equity markets is prone to risks.
One can invest online in this fund through direct route and one need not have a demat account for investing in any mutual fund. Here is the link to invest.
Please do let me know if you liked this blog and which other blog you would want me to write about.
The above is not a recommendation. Please do your due diligence and consult your investment advisor. I’m not a SEBI registered investment advisor.
Categories: Investor's Room
Good read !!
And liked the sentence “start small and make it big one day “.
Thanks a lot, Ashish. Yes that’s how I believe the compounding works.
This is truly inspiring Raghav and Minal! It is a fact that we spend most of the time talking about the plight of others rather than taking any actions to help them. Hats off to you both for taking this noble and rewarding initiative!!
Thankyou Vidya. Rightly said , we spend most of the time, only talking about the problem; not trying to resolve it. This is our small attempt to do action.