Latest news with #ParagParikh
Mint
6 days ago
- Business
- Mint
Comparing mutual funds? Don't just look at returns – here's what matters more
When comparing mutual fund schemes within the same category, most investors look no further than return figures to make their choice. But the truth is, returns are just the tip of the iceberg. Beneath that lies a rich layer of data that paints the true picture, like portfolio concentration, market cap allocation, churn ratio, cash levels, and the fund manager's style. Each of these plays a critical role in shaping both performance and risk. Here's a deep dive into why you need to look beyond returns when comparing funds across some of the popular mutual fund categories. Don't assume all flexicap funds behave the same way. Their name only tells you they have the freedom to invest across market caps, but not how they use that freedom. Allocation freedom: Fund managers can tilt heavily towards largecap (for stability) or mid/smallcap (for aggression), and the resulting portfolio can look very different. Fund managers can tilt heavily towards largecap (for stability) or mid/smallcap (for aggression), and the resulting portfolio can look very different. Risk profile: A flexicap fund with 70% in mid and smallcaps will be far more volatile than one with 70% in largecaps. However, in reality, most flexicaps schemes in this category have a largecap bias A flexicap fund with 70% in mid and smallcaps will be far more volatile than one with 70% in largecaps. However, in reality, most flexicaps schemes in this category have a largecap bias Style matters: Some flexicaps pursue aggressive growth, others follow GARP (Growth at a reasonable price), and a few take a value approach. Returns can look similar over some small phases but diverge wildly over time. Some flexicaps pursue aggressive growth, others follow GARP (Growth at a reasonable price), and a few take a value approach. Returns can look similar over some small phases but diverge wildly over time. Portfolio diversification: Schemes like Motilal Flexicap are known to take a concentrated exposure with fewer stocks of around 30, whereas most others hold 50+ stocks. The high concentration sometimes boosts the alpha and can also backfire at times. Schemes like Parag Parikh consciously take high cash positions when valuations are expensive to limit the downside, as they have done for over a year now. Parag Parikh also has geographical diversification of about 10% through global stocks. Schemes like Motilal Flexicap are known to take a concentrated exposure with fewer stocks of around 30, whereas most others hold 50+ stocks. The high concentration sometimes boosts the alpha and can also backfire at times. Schemes like Parag Parikh consciously take high cash positions when valuations are expensive to limit the downside, as they have done for over a year now. Parag Parikh also has geographical diversification of about 10% through global stocks. Churn ratio: High turnover adds to cost and can signal short-termism. A high-churn flexicap might look nimble but may not build sustainable wealth. Check the actual market cap exposure, investment style, and churn rate to see what you're signing up for. Large & midcap funds must invest at least 35% each in largecaps and midcaps, but fund managers have flexibility over the remaining 30%. Discretionary 30%: Some park it in large caps for stability, others load up on mid/smallcaps to boost returns (and risk). Some park it in large caps for stability, others load up on mid/smallcaps to boost returns (and risk). Portfolio spread: Number of holdings and weight per stock varies. Some funds bet heavily on about 30 stocks, while others diversify across 50+. In this category, again, Motilal has about 30 stocks. Bandhan, HSBC, and Canara each have over 100 stocks, and HDFC's portfolio contains more than 200 stocks. Number of holdings and weight per stock varies. Some funds bet heavily on about 30 stocks, while others diversify across 50+. In this category, again, Motilal has about 30 stocks. Bandhan, HSBC, and Canara each have over 100 stocks, and HDFC's portfolio contains more than 200 stocks. Fund manager philosophy: Value-focused vs momentum-driven vs blend style, each delivers returns differently and reacts differently to market cycles. Risk too varies accordingly Don't just compare past 1-year or 3-year returns. Dig into portfolio composition and fund style for meaningful insights. While midcap and smallcap funds must allocate 65% to their respective segment, the rest is the wildcard. Remaining 35%: Can be in largecaps, smallcaps, midcaps, a mix, or even cash, depending on the manager's outlook. Can be in largecaps, smallcaps, midcaps, a mix, or even cash, depending on the manager's outlook. Volatility and liquidity: Smallcap funds in particular can face liquidity stress in market downturns. How a fund handles this via cash or staggered exits is a key differentiator. Smallcap funds in particular can face liquidity stress in market downturns. How a fund handles this via cash or staggered exits is a key differentiator. Portfolio depth: Concentrated portfolios in these categories can lead to boom-bust cycles. There are schemes with just 40-60 stocks, and there are also those with 200 stocks. Nippon Smallcap has 234 stocks, and Bandhan has 186, and these schemes restrict exposure to each stock to around 3% to derisk. A wider diversification helps in derisking, particularly in the smallcap category, and also to find liquidity for allocation. Excessive buying/selling, especially in low-liquidity segments, adds to costs and erodes return. Check for stock concentration, liquidity risk, and the quality of mid/smallcap exposure. Past returns hide these crucial traits. Multicap funds must invest 25% each in large, mid, and smallcaps, and the remaining 25% is at the manager's discretion. Core stability and tactical plays: Managers can use the remaining allocation to double down on preferred segments based on their priority between growth and stability Managers can use the remaining allocation to double down on preferred segments based on their priority between growth and stability Manager bias: If a manager has a strong pro-midcap bias, your multicap might behave more like a midcap fund. If a manager has a strong pro-midcap bias, your multicap might behave more like a midcap fund. Volatility risk: A multicap fund with a higher smallcap tilt can be volatile despite its name suggesting balance. Whereas a multicap with largecap bias can be more stable, but may lag on alpha generation. A multicap fund with a higher smallcap tilt can be volatile despite its name suggesting balance. Whereas a multicap with largecap bias can be more stable, but may lag on alpha generation. Investment style and churn: GARP vs value vs momentum – makes a big difference in consistency of performance. Multicap of Baroda BNP has a high churn ratio of over 100%. Multicap may not mean as much diversification always. It depends on how the manager uses that discretionary 25% which also can mean 50% can be allocated to a single market cap segment. Don't be guided by the term "Balanced" as balanced advantage funds can be anything but similar. Equity exposure range: Some funds like ICICI & SBI maintain 30–40% in core equity, schemes like Edelweiss, Bajaj and Motilal go all the way to 75%, while some like Kotak, Bandhan, HDFC, Axis etc., take the mid path of around 50-60%, making risk and return profiles entirely different. There are also funds with 0% core equity exposure, like Unifi and Parag Parikh, whose core equity exposure is only in the teens. Some funds like ICICI & SBI maintain 30–40% in core equity, schemes like Edelweiss, Bajaj and Motilal go all the way to 75%, while some like Kotak, Bandhan, HDFC, Axis etc., take the mid path of around 50-60%, making risk and return profiles entirely different. There are also funds with 0% core equity exposure, like Unifi and Parag Parikh, whose core equity exposure is only in the teens. Dynamic allocation method: Some follow pro-cyclical (increase equity as markets rise), others follow counter-cyclical (increase equity as markets fall). Schemes like ICICI and SBI BAF take a counter-cyclical approach, and the likes of Edelweiss and Bajaj take a pro-cyclical approach. Some follow pro-cyclical (increase equity as markets rise), others follow counter-cyclical (increase equity as markets fall). Schemes like ICICI and SBI BAF take a counter-cyclical approach, and the likes of Edelweiss and Bajaj take a pro-cyclical approach. Rebalancing frequency: Some funds change equity exposure daily, some monthly, others do it quarterly or based on model triggers. Most BAFs have 65% exposure to core equity and arbitrage put together, and the gap to 65% after the core equity exposure is filled with Arbitrage, which makes them qualify for equity taxation. Some funds change equity exposure daily, some monthly, others do it quarterly or based on model triggers. Most BAFs have 65% exposure to core equity and arbitrage put together, and the gap to 65% after the core equity exposure is filled with Arbitrage, which makes them qualify for equity taxation. Style overlay: Even within equity allocation, styles differ—value, growth, momentum. Some prefer arbitrage and derivatives; others stay fully invested. Some stick to only largecaps with the equity allocation, while others venture into mid and smallcap too. Even within equity allocation, styles differ—value, growth, momentum. Some prefer arbitrage and derivatives; others stay fully invested. Some stick to only largecaps with the equity allocation, while others venture into mid and smallcap too. Risk vs returns: Those that have followed a counter-cyclical approach with low core equity exposure, like SBI and ICICI, have done well during bear phases like the Covid times and the post Sep'24 period. Those who go heavy on equity have played the bull phase well. Two BAFs may deliver similar 1-year returns, but the underlying approach might be poles apart, leading to huge divergence later in the returns. Look at allocation history and rebalancing logic. Choose your BAF based on your risk appetite first, and choose the funds that are consistent under that filter. Multi-asset funds sound diversified as they can take a mix of domestic equity, debt, gold, silver, crude, REITs, INVITs, and also global equities. But how much they allocate to each asset class and when they do it makes all the difference. In this category, there are schemes which directly invest in securities and also the Fund of Funds, which invests in various schemes instead of individual securities. Asset exposure variability: Some funds take 20%+ exposure to gold, others stick to under 5%, even during a gold rally. Some funds take 20%+ exposure to gold, others stick to under 5%, even during a gold rally. Silver and other commodities: Silver is underused by some funds, despite its potential. The funds that tactically add silver may outperform in commodity bull runs. Certain multi-asset funds hardly take any exposure to silver Silver is underused by some funds, despite its potential. The funds that tactically add silver may outperform in commodity bull runs. Certain multi-asset funds hardly take any exposure to silver Real assets: REITs/INVITs—many funds skip these completely, yet they can offer yield and diversification. So the funds that tactically play this space could potentially generate better gains and offer stability. REITs/INVITs—many funds skip these completely, yet they can offer yield and diversification. So the funds that tactically play this space could potentially generate better gains and offer stability. Global equity exposure: Some funds explore U.S. and emerging markets; others stay purely domestic. Schemes like DSP, ICICI Pru Passive Multi Asset, Nippon Multi Asset Allocation, White Oak Multi Asset, etc., which take decent exposure of around 20% to Global equities, mostly US, have benefited from the rally of stocks there. Global equities also offer geographical diversification, acting as a hedge to Indian equities. Some funds explore U.S. and emerging markets; others stay purely domestic. Schemes like DSP, ICICI Pru Passive Multi Asset, Nippon Multi Asset Allocation, White Oak Multi Asset, etc., which take decent exposure of around 20% to Global equities, mostly US, have benefited from the rally of stocks there. Global equities also offer geographical diversification, acting as a hedge to Indian equities. Varied domestic equity exposure: The domestic equity exposure(core equity + arbitrage) is also different fund to fund, and the market cap allocation. There are also funds with no core equity exposure in this category, like Edelweiss. The overall equity exposure in schemes of Nippon, DSP, WhiteOak, SBI, etc., is more than 35% and below 65%. There are also schemes like ICICI Pru Multi Asset, Baroda BNP Multi Asset, UTI Multi Asset, HDFC Multi Asset, etc., which hold more than 65% in Equity. The domestic equity exposure(core equity + arbitrage) is also different fund to fund, and the market cap allocation. There are also funds with no core equity exposure in this category, like Edelweiss. The overall equity exposure in schemes of Nippon, DSP, WhiteOak, SBI, etc., is more than 35% and below 65%. There are also schemes like ICICI Pru Multi Asset, Baroda BNP Multi Asset, UTI Multi Asset, HDFC Multi Asset, etc., which hold more than 65% in Equity. Taxation based on domestic equity allocation: Based on the equity allocation, the taxation of the schemes also varies. If Equity exposure is more than 65%: Taxed as equity fund-20% on gains earned upto 1 year and 12.5% for gains over 1 year. If Equity is 35 to 65%: Taxed as per the tax slab upto 2 years and at 12.5% beyond 2 years. The frequency and dynamism in asset allocation changes, and how opportunistic the fund is with underappreciated asset classes to capitalise on the opportunity, matter. Don't miss sight of the taxation either. After all, what you take home after taxes only belongs to you. Regardless of the fund category, keep an eye on: Fund manager tenure and philosophy: Long-tenured managers bring consistency. Philosophy of the fund house and the fund manager matters. If the Fund House has a strong investment philosophy that governs the fund management of the scheme, then Fund Manager changes may not impact much. Long-tenured managers bring consistency. Philosophy of the fund house and the fund manager matters. If the Fund House has a strong investment philosophy that governs the fund management of the scheme, then Fund Manager changes may not impact much. Expense ratio: Sometimes, higher TERs are justified if the fund actively manages with superior insights to offer higher alpha. Low cost isn't always best if that doesn't take it to the top in returns. Returns are important—but they're only the output. True fund comparison lies in understanding the input variables — allocation strategy, style, risk tolerance, and asset class usage. Two funds in the same category may appear similar on the surface, but behave very differently during a crash, a rally, or a sideways market. Dassan, Director, Dhanavruksha Financial Services Pvt. Ltd.
News18
01-07-2025
- Business
- News18
Parag Parikh Flexi Cap vs Quant Small Cap: Which MF Suits You Best? Know Return & Risk
Last Updated: Parag Parikh Flexi Cap Fund offers stable, long-term growth with a 5-year return of 26.98%. Quant Small Cap Fund is aggressive with a 5-year CAGR of 37.62%. Parag Parikh Flexi Cap vs Quant Small Cap: Mutual fund is a good financial instrument that allows an investor to invest a particular sum without using too much brain. SIP allows the regular investment in the stock market through these mutual fund schemes. Mutual fund comes in various sizes and shapes, catering to different customers. The sole decision lies with investors on which mutual fund they choose. Parag Parikh Flexi Cap Fund and Quant Small Cap fund are two popular funds with a good track record. Returns: The Parag Parikh Flexi Cap Fund (Direct-Growth) has given a return of 13.54% for in the past one year, 25.10% in the year, and 26.98% in the span of five years. It was launched in 2013. With a negative return of 0.98%, the aggressive Quant Small Cap Fund, on the other hand, has outperformed with a 5-year CAGR of 37.62% and a 3-year CAGR of 33.75%. With Quant's strong growth potential and Parag Parikh's exceptional stability, both funds have routinely outperformed their benchmarks. Fund Size: One of the biggest equity funds, Parag Parikh Flexi Cap Fund manages an AUM of Rs 1,03,868 crore in assets under management (AUM) as of March 31, 2025. With a lower AUM, the Quant Small Cap Fund concentrates on making quick investments in small-cap stocks, which may result in greater volatility but also allow for agility. Portfolio: With a focus on diversification, the Parag Parikh Flexi Cap Fund allocates 10.9% to foreign stocks like Microsoft and Meta, 1.80% to mid-cap, 2.80% to small-cap, and 62.70% to large-cap stocks. With a focus on high-growth industries, the Quant Small Cap Fund primarily invests in small-cap stocks. Who Should Invest: Parag Parikh Flexi Cap suits investors seeking stable, long-term growth with moderate risk, ideal for those with a 5+ year horizon. Quant Small Cap is best for high-risk-tolerant investors aiming for aggressive returns, comfortable with market volatility.
Indian Express
28-06-2025
- Business
- Indian Express
Stillness as strategy: How Pulak Prasad built Rs 50,000 crore the quiet way
Last week, we explored how Parag Parikh built an investment philosophy centered around discipline, patience, and investor behaviour. There is another investor who takes this idea even further. His name is Pulak Prasad. He manages over Rs 50,000 crore through his fund, Nalanda Capital. He invests in a small set of listed Indian companies and holds them for years. He avoids thematic fads, stays away from frequent trading, and maintains a portfolio turnover ratio of less than 5% annually. One of Nalanda Capital's earliest and most successful investments is Page Industries, the company behind the Jockey brand in India. It first invested in 2008 when the stock price was around Rs 420, adjusted for corporate actions. As of 2025, the stock trades above Rs 46,000. Nalanda still owns close to Rs 3,600 crore worth of Page Industries. Although the fund has trimmed its stake from around 10% to 7%, the return remains exceptional. In annual terms, that is a 32% compounded return, turning the original investment into a 100x gain. Few investors achieve such results, especially at this scale. Even fewer do so by holding quietly for over 15 years. At the core of Prasad's philosophy is a simple idea: avoid harm, choose carefully, and let time do the work. His investing lens is shaped by Charles Darwin, not stock market cycles. And this mindset holds lessons for every retail investor, especially those who want to grow wealth steadily, with clarity and patience. Prasad's entire philosophy starts from the idea that avoiding destruction is the first rule of wealth creation. In evolution, most species do not die because they fail to grow fast. They die because they cannot survive shocks such as weather changes, habitat loss, and new predators. Survival is the base condition for all progress. Prasad applies this thinking to investing. He does not try to maximise upside first. He tries to minimise irreversible damage by avoiding poor governance, uncertain business models, fragile balance sheets, and sectors where he has no control over outcomes. At Nalanda Capital, this shows up clearly: they avoid highly leveraged businesses, they stay away from financials, and they do not invest in anything they cannot explain in one paragraph. Most investors focus on return potential. 'Can this become a multibagger?' is the first question. But they ignore the more important one: 'What can go wrong, and will I survive it?' That is why people hold a collapsing stock from Rs 800 to Rs 200, hoping it will bounce back. The capital is not just lost, but the compounding engine is broken. Build your portfolio with strong foundations first. Avoid companies where accounting is questionable, or where you do not understand how they make money. Prasad's fund holds 10-15 companies, and it has done that while managing Rs 50,000 crore. This is very similar to how Parag Parikh Asset Management Company also operates. This is intentional focus. Prasad also seems to believe that every additional holding weakens the clarity of thought. If you do not know why something is in the portfolio, it should not be there. His investment in Page Industries is a case in point. Nalanda studied the company deeply, including its pricing power, its category leadership, and the promoter's capital allocation, and then committed large capital with conviction. The result: a holding that compounded at 32% annually for over a decade. Most people over-diversify out of fear. They add another stock, another fund, another NFO, thinking it reduces risk. But it often does the opposite. It hides underperformance, spreads attention too thin, and leads to a portfolio without a centre. Worse, when something fails, there is no learning. The investor says, 'It was only 2% of my capital,' and moves on. But Prasad would ask, 'Then why did you own it at all?' Own fewer funds. If you pick stocks, stick to companies where you would be confident putting 10% of your net worth. If that feels too risky, it may be a sign you do not understand the business well enough. Fewer, better decisions – that is what leads to clarity and conviction. Prasad often says investors should be 'very lazy.' It sounds quirky, but it is deeply rooted in behavioural science. When people feel uncertain, they reach for action as a coping mechanism, such as checking prices, switching funds, or watching market news. And stock prices tend to feed that, and it feels like control, but it usually leads to poor decisions. Nalanda Capital avoids this trap. The fund's portfolio turnover is below 5%, year after year. Again, very similar premise to what PPFAS follows to the core. These funds do not reallocate due to temporary underperformance. They do not chase sectors. They do not respond to other fund managers' trends. They only act when the investment thesis has structurally changed. Retail investors often measure involvement by activity, not just in terms of buying and selling, but by mirroring signals they assume are credible. They think: Each of these is an attempt to stay engaged. But most of this activity is based on cues or actions, not actual understanding. Prasad avoids this entirely. His decisions are not shaped by what others are doing. He trusts his filters, waits patiently, and does nothing if there is no clear reason to act. Build a system where you act only when your logic tells you to and not because someone else acted. Choose investments that make sense to you. Once selected, allow them time. Remember that your job is not to match others' moves. Your job is to grow your capital slowly and steadily. Prasad does not believe in timing the market. He says: nobody knows what will happen next quarter. So instead of trying to be early or clever, he lets time reveal the real nature of a business. His investment in Page Industries or Berger Paints was not done for next year's results. He invested because Nalanda believed these businesses could grow, evolve, and survive over a 10-15 year period, even if the stock price did not reflect that in the short term. Most investors waste years trying to find the 'right time to enter.' But while waiting for a correction, they miss the very asset that could have compounded quietly in the background. Or they panic and exit after three bad months, possibly just before the bounce happens. Prasad's philosophy flips this. If the business is good and the future looks healthy, then the only timing that matters is how long you are willing to wait. Stop trying to find the perfect entry. Invest regularly. Let valuations average out. And once invested, stop looking at monthly performance. Your edge is not in the entry point. Your edge is in how long you can stay. It is easy to believe that if everyone is buying something, it must be safe. That is exactly what Prasad avoids. Over decades in markets, he has seen how popular narratives collapse together, whether it was the K-10 stocks of the late 1990s, the infrastructure boom of 2007, or the tech IPO rush of 2021. When retail flows were pouring into companies like Zomato, Paytm, and Nykaa, Nalanda stayed away. Possibly because these businesses lacked consistent profitability, had unclear moats, and were priced for perfection. Just because the market celebrated them did not make them long-term bets for Nalanda Capital. Retail investors often use popularity as a proxy for safety. They assume: But most of these signals reflect past attention, not future strength. When too many people crowd into the same idea, the downside grows larger than it seems. Make decisions based on business logic, not market buzz. Ask: Does this company have earnings power? Is its balance sheet strong? Is it reasonably priced? If yes, stay with it even if no one is talking about it. If no, walk away even if everyone else is buying it. Prasad does not claim to know the future. He does not predict markets. He does not rely on momentum or moods. His strength lies in stillness. The ability to observe, act selectively, and then wait without anxiety. It comes from years of watching how companies behave, how cycles unfold, and how investors often act too soon. Prasad's method is not built for thrill, and for anyone who wants to build wealth with peace, it remains one of the most useful philosophies in Indian investing today. Note: We have relied on data from the annual reports throughout this article. For forecasting, we have used our assumptions. Parth Parikh has over a decade of experience in finance and research, and he currently heads the growth and content vertical at Finsire. He has a keen interest in Indian and global stocks and holds an FRM Charter along with an MBA in Finance from Narsee Monjee Institute of Management Studies. Previously, he has held research positions at various companies. Disclosure: The writer and his dependents do not hold the stocks discussed in this article. The website managers, its employee(s), and contributors/writers/authors of articles have or may have an outstanding buy or sell position or holding in the securities, options on securities or other related investments of issuers and/or companies discussed therein. The content of the articles and the interpretation of data are solely the personal views of the contributors/ writers/authors. Investors must make their own investment decisions based on their specific objectives, resources and only after consulting such independent advisors as may be necessary.
Economic Times
27-06-2025
- Business
- Economic Times
Best medium duration mutual funds to invest in June 2025
If you are looking for debt mutual fund to park money for four years or more and are ready to take some risk and volatility, you can consider investing in medium duration funds. Synopsis As per Sebi mandate, medium duration funds must invest in debt and money market instruments with Macaulay duration of three to four years. As you can see, these schemes are suitable for investors looking to invest for three to four years or more. However, you should check the portfolio duration of the scheme to ensure that the scheme is in line with your investment horizon. Many investment advisors believe that medium duration funds are better placed to offer superior returns when the interest rates start falling. Debt mutual funds offer attractive returns in a falling interest rate environment. If that interests you, you can learn more about medium duration funds. ADVERTISEMENT Most mutual fund investors stick to liquid funds, ultra short term funds, short term funds, banking & PSU funds, corporate funds, etc. to take care of their short-term needs. Most of them might know about gilt funds. Even though they may not invest in them. However, many investors are not aware of medium duration funds. Chances are that most people will keep hearing about medium duration funds this year because most mutual fund advisors are recommending these schemes to their clients these days. Also Read |Parag Parikh Flexi Cap Fund, Quant Small Cap Fund among 17 mutual funds which deliver over 20% XIRR on SIP investments in 10 years As per Sebi mandate, medium duration funds must invest in debt and money market instruments with Macaulay duration of three to four years. As you can see, these schemes are suitable for investors looking to invest for three to four years or more. However, you should check the portfolio duration of the scheme to ensure that the scheme is in line with your investment mutual fund advisors do not recommend medium and long term debt schemes to regular investors. These schemes are extremely sensitive to changes in the interest rate environment. They suffer when the rates go up. Mutual fund advisors say many conservative investors would find it difficult to handle the volatility faced by these schemes. Also Read | MNC mutual funds struggle to perform, lose 3% in 1 year. What's driving the underperformance? ADVERTISEMENT In short, if you are looking for a debt mutual fund where you can park money for four years or more and are ready to take some risk and volatility, you can consider investing in medium duration funds. Please watch out for monthly updates so that you can keep track of your schemes. Bandhan Bond Fund Medium Term Plan, one of the recommended schemes, has been in the fourth quartile for the last 23 months. The scheme had been in the third quartile earlier. HDFC Medium Term Debt Fund has been in the third quartile for the last 20 months. ADVERTISEMENT MethodologyETMutualFunds has employed the following parameters for shortlisting the debt mutual fund schemes. 1. Mean rolling returns: Rolled daily for the last three years. ADVERTISEMENT 2. Consistency in the last three years: Hurst Exponent, H is used for computing the consistency of a fund. The H exponent is a measure of randomness of NAV series of a fund. Funds with high H tend to exhibit low volatility compared to funds with low H.i)When H = 0.5, the series of returns is said to be a geometric Brownian time series. This type of time series is difficult to H 0.5, the series is said to be mean reverting. ADVERTISEMENT iii)When H0.5, the series is said to be persistent. The larger the value of H, the stronger is the trend of the series 3. Downside risk: We have considered only the negative returns given by the mutual fund scheme for this measure. X =Returns below zeroY = Sum of all squares of XZ = Y/number of days taken for computing the ratioDownside risk = Square root of Z 4. Outperformance: Fund Return – Benchmark return. Rolling returns rolled daily is used for computing the return of the fund and the benchmark and subsequently the Active return of the fund. Asset size: For debt funds, the threshold asset size is Rs 50 crore (Disclaimer: past performance is no guarantee for future performance.) (Catch all the Mutual Fund News, Breaking News, Budget 2024 Events and Latest News Updates on The Economic Times.) Subscribe to The Economic Times Prime and read the ET ePaper online. NEXT STORY
Indian Express
21-06-2025
- Business
- Indian Express
What Parag Parikh understood about investing that others didn't
I've come across this situation more than once — and perhaps you have too. At a social gathering or a wedding, a small group begins discussing stocks. Someone says, 'I bought this stock at 200, now it is 500.' Another adds, 'I told you about it, but you did not listen.' A third one chimes in with a tip that a stock they believe is about to double next. The conversation is filled with enthusiasm, occasional regret, and a great deal of confidence. Nearly everyone has something to contribute. Such conversations are common. It is always about chasing the next opportunity, seldom about understanding the one already taken. This raises a broader question: if these are the kinds of discussions seen occasionally in casual settings, what do seasoned investors encounter every day? Those who have spent decades in the markets. Those who have watched not just stock prices, but investor behaviour across cycles. People like Warren Buffett, Vijay Kedia, or R Damani. What must they have observed? What must they have understood that others could not? Because anyone can invest. But very few build a philosophy. Even fewer stick to it. Parag Parikh was one of those few. Parag Parikh spent years not just watching stock prices, but observing investors. As a broker in the 1980s and 90s, he dealt with all kinds of clients, from businessmen chasing the next tip, traders shaken by sudden losses, and long-term investors who got impatient halfway through the journey. Over time, he began to see patterns and, more so, how people thought. He realised that investor behaviour, not stock selection alone, was the real driver of long-term success. From that came five key behavioural insights — each rooted in something he saw go wrong, and each one consciously built into the investment process at PPFAS. Here's how. Where it began: Parag Parikh must have noticed a pattern among investors that they often sold their winners too early, afraid the gains would vanish, but continued to hold on to poor performers, waiting for a recovery that might never come. People simply feared regret more than they desired rationality. What he built from it: He built a process focused on businesses that reduce the need for emotional decisions in the first place. That meant buying strong companies at reasonable prices, ones that offered both quality and staying power. This allowed investors (and the fund) to hold through volatility without second-guessing every correction. How PPFAS applies it: A strong example is ITC. Between 2017 and 2020, ITC became one of the most unpopular large-cap stocks. Revenue growth was slow, the FMCG business was not scaling fast enough, and the stock remained in the Rs 180-220 range for over three years. Many investors lost patience and exited. But PPFAS stayed invested. Why? Because their thesis was based not on quarterly performance but on fundamentals, a debt-free balance sheet, high free cash flow, consistent dividend yield, and a dominant position in cigarettes and packaged foods. They believed value was building silently, even when the price did not reflect it. As of 2025, ITC is up over 90% from its 2020 lows, has expanded margins in its FMCG business, and significantly increased dividend payouts. This example shows how resisting loss aversion and trusting a business rather than reacting to market frustration can lead to long-term gains. And it is this ability to stay invested through the 'boring' phases that often separates a good process from a reactive one. Where it began: Parag Parikh often saw investors treat different pools of money differently. A monthly SIP would be invested carefully, but a year-end bonus or a sudden windfall would be put into a high-risk small-cap stock or an IPO without much thought. People mentally separated money by source, as salary money was 'serious,' and bonus money was 'extra.' He believed this bias led to inconsistent decisions, often based on emotion, not logic. What he built from it: To counter this, Parikh believed investors needed a single, goal-driven lens for all financial decisions. Whether it was SIP money, inheritance, or a one-time gain, it should be invested with the same level of discipline. That is also why he was against the idea of managing too many products for different moods or market cycles. He believed clarity was more valuable than variety. How PPFAS applies it: PPFAS still operates with that same mindset. It has maintained a simple, focused product lineup, comprising just one core equity fund that is the Parag Parikh Flexi Cap Fund, along with a tax-saving version (ELSS) of the same strategy. While it also offers an arbitrage fund, that is not positioned or managed as an equity fund in the traditional sense. There are no sectoral funds, no momentum strategies, and no new fund offers built around temporary themes or market cycles. Even when investor flows surged after Covid in 2021, and other AMCs rushed to launch 30-40 new schemes across smallcaps, ESG, and global themes, PPFAS resisted. They received regular feedback from distributors and investors asking, 'Why not launch a small-cap fund?' or 'Why not ride the momentum with a new-age tech basket?' But they chose not to. Because doing that, they believed, would give investors the illusion of choice, but encourage mental accounting that could lead to separate pots of money, each with its own logic, and ultimately, a disjointed portfolio. Instead, PPFAS guided investors to treat their capital as one, focusing on long-term wealth creation and allocating it through a single, well-diversified fund. A good example of how they handled inflows responsibly is from 2020 to 2021, when their AUM jumped sharply. Instead of deploying all the funds at once or chasing high-beta stocks, they remained selective, allocating gradually and sometimes even holding over 10% in cash and arbitrage positions, waiting for better valuations. Where it began: Parag Parikh often observed that investors found it very hard to let go of losing positions. Not because the business was still strong, but because they had already invested time, money, and emotion into it. He saw this during the K-10 stock boom in the late 1990s, where people held on to crumbling companies because they had entered at a higher price and did not want to 'book a loss.' The logic was simple: 'I have already put in so much, maybe it will bounce back.' But he believed this was one of the most damaging biases in investing. A stock does not know you own it. Your entry price does not matter to the business. Only the future does. What he built from it: Parikh designed an investment process where each holding was reviewed continuously against its thesis, not its cost price. If a company no longer met the standards of quality, governance, or growth visibility, it had to go. No matter how popular it once was. No matter how much time it had spent in the portfolio. He encouraged detachment, not indifference, but the ability to change your mind when facts changed. How PPFAS applies it: A clear example is Sun Pharma. PPFAS bought into Sun Pharma around 2018, when it was still India's leading pharma company. It had acquired Ranbaxy in 2015. The logic was that post-merger synergies, strong promoter pedigree, and domestic market leadership would continue to drive long-term returns. But over time, the situation changed. Regulatory issues with the US FDA, weak integration outcomes, and a decline in profitability raised red flags. The company was still well known, but its outlook became murky. Instead of holding on just because it was once a blue-chip name or because the fund had a large allocation, PPFAS trimmed its exposure significantly between 2023 and 2024. That was a classic implementation of Parikh's thinking. The question was not, 'Will it come back to our cost?' The question was, 'Does it deserve our capital going forward?' By focusing on future relevance rather than past commitment, the fund avoided getting trapped. Where it began: Parag Parikh had seen what happens when too many people chase the same idea. During the Harshad Mehta rally in 1992, he watched clients pour into stocks they barely understood, simply because everyone else was buying. The same thing happened again in the dot-com boom of 1999-2000 and the real estate-led rally of 2007-2008. Each time, the early gains drew more people in, and the fear of missing out replaced careful thinking. Parikh realised that when a stock or sector becomes too popular, the risk does not reduce; it multiplies silently. Everyone cannot exit at the same time. What he built from it: He built a deep resistance to consensus thinking. If everyone loved a stock, he asked why. If everyone were ignoring a sector, he became curious. He taught that investing is not about copying, it is about thinking independently. How PPFAS applies it: A strong example is PPFAS's decision to stay away from hyped IPOs and trending new-age businesses. In 2021, when the Indian IPO market saw a flood of digital-first companies, many mutual funds rushed to participate. These stocks were seen as the next frontier, priced aggressively, and backed by global capital. But PPFAS did not invest in any of them at the time of listing. Their reason was clear: most of these companies had weak profitability, unclear moats, and lacked a clear timeline to self-sustaining cash flows. It did not matter that they were trending. What mattered was that the valuation did not match the business model. By 2023, many of those names corrected sharply, some by over 40-60% from their IPO highs. Instead, PPFAS kept adding to companies like Bajaj Holdings, ICICI Bank, and Cognizant, none of which were popular at that time, but all had clean balance sheets, steady cash generation, and long-term potential. Their conviction was not driven by market sentiment, but by bottom-up research. Even globally, they added Amazon and Meta during periods when those stocks were under pressure, post-2022 correction, citing strong fundamentals and future earnings power, even though market opinion was still cautious. Herd behaviour also works in reverse. During pessimistic phases such as March 2020 or the early 2023 correction in US tech, PPFAS was willing to go against the prevailing mood and increase allocations in fundamentally sound but temporarily unloved names. In short, they continue to ask: Is this idea good? Or is it just popular? And that one question keeps them from making the same mistakes the crowd makes, just a little later. Where it began: Parag Parikh often said that most investors want long-term wealth but follow short-term behaviour. He saw it firsthand as clients who bought with a five-year view but sold in five weeks. The slightest correction, a missed quarterly estimate, or a new tip from a friend would trigger panic or FOMO. He realised that while the market offers daily prices, wealth is built over the years. This was one of his most fundamental beliefs: you cannot compound if you keep interrupting the process. What he built from it: He built a structure where patience is baked into the system. He believed in buying a business only if you were comfortable holding it through multiple cycles. This meant the portfolio had to be simple, conviction-led, and resistant to noise. He also believed in educating investors to align with this philosophy, which is why even today, PPFAS actively tells potential investors: If you cannot stay for five years, please do not invest. How PPFAS applies it: This thinking shows up in two clear ways: portfolio design and investor communication. On portfolio design: PPFAS maintains one of the lowest portfolio turnover ratios in the industry, consistently under 10%. That means they rarely sell just because a stock has moved. For comparison, most active equity funds in India have turnover ratios above 60-70%, which indicates more frequent buying and selling. Some examples of their long-held positions: ITC stayed in the portfolio even when it underperformed for nearly five years. Today, it is one of the fund's top performers. Nestlé India, HDFC Ltd., and Bajaj Holdings have remained core holdings for 5-8 years through multiple market cycles. On the global side, Alphabet (Google) and Amazon have been held through periods of extreme volatility, including the tech correction of 2022, with no panic selling. Their approach is clear: if the business fundamentals are intact, temporary price moves are not a reason to act. The decision to hold is based on the company's ability to grow free cash flow, expand margins, and reinvest capital effectively, not on short-term market opinion. On investor communication: Every year, they hold an annual unitholder meeting, where the CIO and fund managers openly answer questions, share what is working and what is not, and urge investors to stay the course. During the Covid crash in March 2020, PPFAS published detailed letters explaining why they were not making major changes. They did not reshuffle portfolios. They waited, trusted their holdings, and within 12-18 months, the fund had sharply outperformed peers who overreacted. Even as of 2024, the fund has told new investors clearly: This is not a fund built for quarterly comparisons or tactical moves. It is built for compounding. Parag Parikh observed how people behaved with money and the decisions they repeated, the habits that shaped outcomes, and turned those insights into a way of investing that focused on quality, patience, and clarity. That approach became a part of how the fund operates even today. PPFAS continues to invest with the same mindset, thoughtful stock selection, low churn, and a deep respect for long-term discipline. This article is not meant to promote the fund. It is simply an attempt to understand how a clear way of thinking has been carried forward. The philosophy that Parag Parikh practised and passed on still offers something useful to every investor. It shows that when you give decisions enough thought, when you stay with businesses you understand, and when you trust time to do its work, investing becomes a lot steadier. Note: We have relied on data from the annual reports throughout this article. For forecasting, we have used our assumptions. Parth Parikh currently heads the growth and content vertical at Finsire. He holds an FRM Charter along with an MBA in Finance from Narsee Monjee Institute of Management Studies. Disclosure: The writer and his dependents do not hold the stocks discussed in this article. The website managers, its employee(s), and contributors/writers/authors of articles have or may have an outstanding buy or sell position or holding in the securities, options on securities or other related investments of issuers and/or companies discussed therein. The content of the articles and the interpretation of data are solely the personal views of the contributors/ writers/authors. Investors must make their own investment decisions based on their specific objectives, resources and only after consulting such independent advisors as may be necessary.
