We compare the portfolios of Parag Parikh Dynamic Asset Allocation Fund (PPDAAF) and Parag Parikh Conservative Hybrid Fund (PPCHF) to appreciate when each fund can be used.
As noted earlier – Parag Parikh Dynamic Asset Allocation Fund: Who should invest? – the AMC wishes to maintain a debt-oriented allocation, making PPDAAF more tax-efficient than the PPCHF.
Long term capital gains from PPDAAF units older than three years will be taxed at 20% with indexation, while gains from PPCHF units will always be taxed as per slab. For more details, see: Will Parag Parikh Dynamic Asset Allocation Fund gains be taxed as per slab?
Is PPDAAF a tax-efficient “alternative” to PPCHF? The answer is not a simple ‘yes’ or ‘no’.
PPDAAF is benchmarked to CRISIL Hybrid 50+50 Moderate Index (50 direct equity), while PPCHF is benchmarked to CRISIL Hybrid 85+15 – Conservative Index TRI (15% direct equity). So, you expect PPDAAF to hold more direct equity than PPCHF.
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Let us look at the current asset allocations of both funds (as of Feb 29 2024, at the time of writing). Please note that PPDAAF can change equity from 0 to 100%. So, although the AMC is expected not to change asset allocation too much, we must recognise that it can. So, from this aspect alone, PPDAAF is not a replacement for PPCHF. But, if we “believe” the AMC will maintain a debt-oriented allocation, we can discuss other considerations.
| Asset Class | PPDAAF | PPCHF |
| Equity | 13.11% | 14.39% |
| Arbitrage | 23.40% | 0.55% |
| Corporate Bonds | 17.61% | 4.24% |
| Gilts/SDLs | 23.45% | 60.38% |
| REITs/InvITs | – | 7.81% |
| Money Market | 8.66% | 10.18% |
| Cash | 13.77% | 2.45% |
The cash and money market allocation of PPDAAF can change since it is a new fund. For now, the two funds are roughly similar in risk profile, but this may not be the case in future.
- Experienced high-net-worth investors can consider replacing PPCHF with PPDAAF in their long-term goal portfolios. Caveat: PPDAAF may hold higher unhedged equity than the conservative hybrid fund.
- Despite the tax treatment, PPCHF is still a good choice for long-term goals. So, risk-averse investors can continue to invest in the fund.
- We do not recommend using PPDAAF after retirement unless the corpus is plentiful.
- We do not recommend using either fund for short-term goals – less than five years.
- New investors must not be in a hurry to invest in PPDAAF. They can wait and see the portfolio and performance (risk and returns) for a while before considering it.
My plan: Readers may know I am invested in the Parag Parikh Conservative Hybrid Fund. See: Why I started to invest in Parag Parikh Conservative Hybrid Fund. I continued to invest in the fund after the March 2023 taxation amendment mentioned above.
I will now divert fresh investments into the Parag Parikh Dynamic Asset Allocation Fund in my retirement portfolio to reduce my tax burden without too much change in the investment risk profile. I still hold PPCHF in my retirement and my son’s future portfolios. I may invest in PPCHF for my son’s future portfolio. I want to caution readers that this move is suited to my circumstances. This is neither a recommendation nor an endorsement. Kindly review your circumstances before investing.
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