I recently pointed out in a video that combining active and passive investing represents a lack of conviction and is a scattergun approach. I cited the example of holding the Parag Parikh Flexi Cap fund + Nifty/Sensex Index fund.
A reader holding Parag Parikh Flexi Cap Fund plus UTI Nifty 50 Index fund wrote in that he likes the value investing approach of Parag Parikh AMC and trusts them. He also likes passive investing and believes it is tough to beat the market over the long term. He wants to know if he is doing something wrong and if he can continue investing in these two funds.
Considering that my portfolio is far more cluttered than yours, I am hardly in a position to sit in judgment of your investing choices. For what it is worth, I don’t think you are doing anything wrong and can continue (with some caveats discussed below).
That said, allow me to offer some context and generic suggestions to your question. Value investing seems quite glamorous but is, in fact, far riskier than index investing. There has been some social media debate on whether the said fund is a value fund or can afford to remain a value fund at its AUM levels.
Regardless, they have performed well, and as long as the going is good, no one will complain. Every active fund will go through a bad phase, and it is a matter of time before it is the turn of the Parag Parikh Flexicap Fund. Most active investors fail to recognize this. Since you already appreciate passive investing, ask yourself, “What will I do if the fund cannot beat the benchmark for a few years?”
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When investors say they “like” some AMC staff or “trust” the AMC, it is almost always based on scant information. So, I would suggest investing without emotional attachment. We must be professional fund managers of our financial goals.
People come and go all the time. If Rajeev Thakkar quits tomorrow, fund performance may be affected. In any case, he could retire in a few years. This is a significant risk. Considering their popularity – Parag Parikh Flexi Cap Fund is the most popular direct plan equity MF – and burgeoning AUM, it is not reasonable to expect their past performance to repeat in future.
Therefore, my suggestion is to enhance index fund weightage from now on. But first, ask yourself if you can handle the FOMO on active fund returns. If you can, then the path is simple. You will recognise what I was referring to in the video if you cannot. 🙂
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