AUM of Parag Parikh Flexi Cap Fund grows by 147% in 2020!

Published: January 24, 2021 at 10:46 am

Last Updated on December 29, 2021 at 6:01 pm

The AUM (asset under management) of Parag Parikh Flexi Cap Fund (previously known as Parag Parikh Long Term Equity Fund) grew by 147% in 2020. This article evaluates the AUM growth of this fund and discusses if this is a cause for concern.

This article stems from a question posed by a reader: “I have been observing for the last six months, the AUM of PPFAS flexi cap fund is increasing very quickly. Unfortunately, I don’t have exact data on monthly basis. The same had happened with Kotak Multicap in the past. Can we have a quantitative analysis of how the fund performance is affected when there is a sudden influx of large cash? ( Normally it happens with Actively managed popular funds)”

A sudden influx of cash can, in general, impact performance, in particular, the ability of the fund manager to freely churn stocks. It is quite possible that the sudden increase in AUM of HDFC Top 100 and HDFC Equity after the 2009 market recovery is the reason for subsequent underperformance of these funds. However, it is hard to quantitatively connect AUM with performance (at least for Indian funds): Does the size of a mutual fund affect its performance? and Mutual Fund Size vs. Performance: A Case Stud

It is, intuitively known that investors are known to close the barn door after the horse has bolted. That is, they will wait to see the performance, wait for the fund to get a five-star rating, rush to buy it, the AUM swells, the law of averages kicks in, the star rating drops, investors, move on to buy the next star rated fund adding clutter to the portfolio. Rinse and repeat. Reminds you of what Agent Smith said in the Matix:

Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email!
🔥Enjoy massive discounts on our robo-advisory tool & courses! 🔥

Every mammal on this planet instinctively develops a natural equilibrium with the surrounding environment but you humans do not. You move to an area and you multiply and multiply until every natural resource is consumed and the only way you can survive is to spread to another area. There is another organism on this planet that follows the same pattern. Do you know what it is? A virus.

Very few funds have been able to manage the inflow of funds without a drop in performance and without restricting inflows. Example ICICI Blue Chip and HDFC Midcap (at least until a couple of years ago).

So while it is obvious that Parag Parikh Flexi Cap Fund has caught investor attention, it is impossible to predict future performance linked to AUM inflow. All we can say for sure is, if the market does not move up as rapidly as it has in the last few months, the inflow will reduce.

Even without looking at the data, one could say this much: there is no point worrying about what we cannot control. At present, an AUM of 6000-7000 crores is unlikely to be an issue for a flexi-cap fund. When it becomes an issue is hard to say. Funds that swell up in AUM tend do increase the number of stocks in the portfolio; increase their allocation to large caps; reduce the churn rate – Prashant Jain’s funds are a good example.

Even if one notices such changes, it would be hard to directly attribute it to AUM – quantitatively that is.  For example, a drop in the star rating of the fund (an eventuality) could simply mean the availability of better performing funds, not necessarily the aum growth of Parag Parikh Flexi Cap Fund.

The underperformance of Parag Parikh Flexi Cap Fund wrt its benchmark (also an eventuality) could arise from a portfolio different from that of the index (the same reason for outperformance!), not AUM increase.

The situation is quite similar to high PE and market corrections.. The market does not wake up one morning and decide to fall down because the PE is high. With that said, let look at the data.

AUM trend of Parag Parikh Flexi Cap Fund

The 147% growth in AUM of Parag Parikh Flexi Cap Fund is 36th highest increase out of 399 equity funds. A percentage increase in AUM alone does not say much because (1) the base AUM matters and (2) the increase in the market value (capital gains) of the portfolio also has to be factored in.

From Rs. 2585 crores in Dec 2019 the aum has increased to Rs. 6393 Crore in Dec 2020 (all numbers approximate). About 71.6% of the funds Average Assets under Management (AAUM) for the quarter of October – December 2019  was in the direct plan (old PMS investors  likely to be the biggest chunk + about 5% AMC skin in the game)

The direct share dropped a bit to 69.5% of the Average Assets under Management (AAUM) for the quarter of October – December 2020 (source AMFI). So distributors have started to push the fund in 2020 (everyone likes a winner!). The regular AAUm grew by 147% while the direct AAUM by 123%.

Since PPFAS does not have a bank (at the time time of writing!) investors need not fear a steep increase in (regular) AUM, but as long as the fund continues to do well and a bit beyond, a robust increase in AUM should be expected.

As mentioned above, the increase in AUM is because of two reasons: more funds(inflow) and capital gains. We can estimate the inflow in a crude manner. Let us consider a dramatic example: Quant Small Cap Fund.

In Dec 2019, the fund had only 1.9 Crores of AUM. In Dec 2020 it became 94.1 Crores. A 4783% increase! During this period the fund gave a return of 75.1% (abs change in NAV).

If that 1.9 Croes AUM was intact, then the capital gain of 75.1% would move this AUM to only 3.4 Crores. So the remaining 91.4 – 3.4 = 90.7 Crores (all nos approximate) is likely to be the inflow. The estimated increase in AUM due to inflow is 90.7/1.9 or about 4708%.

Of course, this is a crude estimate as investors would continuously invest and redeem in open-ended funds, but that is all that can be done. While the % increase in AUM for Parag Parikh Flexi Cap Fund is 147% (Dec 2019 to Dec 2020), the estimated increase in AUM due to inflow is about 115% – still significant.

The estimated increase in AUM due to inflow for Parag Parikh Tax Saver Fund is 282%. So this is getting noticed more. While the direct AAUM of this ELSS fund grew by 250% (same period as above), the regular AAUM shot up 376% (lock-in = more commissions). Of course, the Tax Saver fund has just hit 100 Crores AUM (meaning it will take a few more years for these investors to worry about AUM).

The normalized evolution of AUM and NAV of the Flexicap fund is shown below (I have deliberately avoided the use of log scale!)

Since March 31st 2020, the NAV has increased by 68% while the AUm by 161%. The estimated increase in AUM due to inflow is about 93% – almost a doubling of the AUM due to inflow.

The six-month change in AUM and NAV rolled over each month is shown below. Initially, there is a small change in the AUM and NAV movement from early 2018 the AUM lines pulls away from the NAV. The bare data is sourced from ACE MF.

The six month change in AUM and NAV of Parag Parikh Flexicap Fund
The six-month change in AUM and NAV of Parag Parikh Flexicap Fund

If we try to separate the inflow and capital gains as mentioned above we get a smoother increase in flow  in 2020.

Six months estimated change in AUM due to inflow for Parag Parikh Flexi Cap Fund along with Nifty 500 TRI on the right axis
Six months estimated change in AUM due to inflow for Parag Parikh Flexi Cap Fund along with Nifty 500 TRI on the right axis

These numbers are more for the AMC to pat itself on the back and dole out bonuses (maybe employees can stake their claim with this article!). For investors, it is just standalone information. As mentioned above it is hard to correlate performance with AUM movements if we try to go beyond lazy speculation.

Bulging AUM is the price one has to pay for outperformance in addition to the expense ratio. I would recommend index funds for those worried about AUM hike, but for any given choice, investors find something to worry about and get confused.

Do share this article with your friends using the buttons below.

🔥Enjoy massive discounts on our courses, robo-advisory tool and exclusive investor circle! 🔥& join our community of 5000+ users!
Use our Robo-advisory Tool for a start-to-finish financial plan! More than 1,000 investors and advisors use this!
New Tool! => Track your mutual funds and stock investments with this Google Sheet!
We also publish monthly equity mutual funds, debt and hybrid mutual funds, index funds and ETF screeners and momentum, low-volatility stock screeners.
Follow Freefincal on Google News
Follow Freefincal on Google News
Subscribe to the freefincal Youtube Channel. Subscribe button courtesy: Vecteezy.
Subscribe to the freefincal Youtube Channel.
Follow freefincal on WhatsApp Channel
Follow freefincal on WhatsApp
Podcast: Let's Get RICH With PATTU! Every single Indian CAN grow their wealth! 
Listen to the Lets Get Rich with Pattu Podcast
Listen to the Let's Get Rich with Pattu Podcast
You can watch podcast episodes on the OfSpin Media Friends YouTube Channel.
Lets Get RICH With PATTU podcast on YouTube
Let's Get RICH With PATTU podcast on YouTube.

  • Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
  • Have a question? Subscribe to our newsletter using the form below.
  • Hit 'reply' to any email from us! We do not offer personalized investment advice. We can write a detailed article without mentioning your name if you have a generic question.

Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email!

About The Author

Pattabiraman editor freefincalDr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.
Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! More than 3,000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter the market condition is!! Watch the first lecture for free!  One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Our new course!  Increase your income by getting people to pay for your skills! More than 700 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!   
Our new book for kids: “Chinchu Gets a Superpower!” is now available!
Both boy and girl version covers of Chinchu gets a superpower
Both the boy and girl-version covers of "Chinchu Gets a superpower".
Most investor problems can be traced to a lack of informed decision-making. We made bad decisions and money mistakes when we started earning and spent years undoing these mistakes. Why should our children go through the same pain? What is this book about? As parents, what would it be if we had to groom one ability in our children that is key not only to money management and investing but to any aspect of life? My answer: Sound Decision Making. So, in this book, we meet Chinchu, who is about to turn 10. What he wants for his birthday and how his parents plan for it, as well as teaching him several key ideas of decision-making and money management, is the narrative. What readers say!
Feedback from a young reader after reading Chinchu gets a Superpower (small version)
Feedback from a young reader after reading Chinchu gets a Superpower!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.
Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook is for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Do you want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or get the Tactical Buy/Sell timing tool!
We publish monthly mutual fund screeners and momentum, low-volatility stock screeners.
About freefincal & its content policy. Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified with credible and knowledgeable sources before publication. Freefincal does not publish paid articles, promotions, PR, satire or opinions without data. All opinions will be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
Our publications

You Can Be Rich Too with Goal-Based Investing

You can be rich too with goal based investingPublished by CNBC TV18, this book is meant to help you ask the right questions and seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.
Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want Gamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you wantThis book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.

Your Ultimate Guide to Travel

Travel-Training-Kit-Cover-new This is an in-depth dive into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, and how travelling slowly is better financially and psychologically, with links to the web pages and hand-holding at every step. Get the pdf for Rs 300 (instant download)