Last Updated on December 13, 2020 at 8:50 am
Parag Parikh Long Term Equity Fund has now become Parag Parikh Flexi Cap Fund, in order to fall in line with the SEBI Multicap MF Rule issued in Sep 2020 forcing multi caps to invest in 25% in midcap and 25% in smallcap stocks and taking advantage of the new scheme category introduced in Nov 2020: Flexi-cap mutual funds. PPFAS Mutual Funds has issued a “change in the fundamental attribute” circular to this effect. Here is what it means.
Parag Parikh Long Term Equity Fund will now be called Parag Parikh Flexi Cap Fund, an open-ended dynamic equity scheme that can invest across large caps, mid caps and small caps.
There is no other change in scheme properties. A change in a fundamental attribute is a mandatory requirement and if mutual funds make any change that is significantly different from what was present earlier (in this case name and change in multicap definition by SEBI), then AMCs will have to inform investors and offer them a 30-day window to leave the fund free of exit load. In this case, it is merely a formality and investors need not do anything on account of this circular.
In order to comply with another SEBI circular, the fund will now have the possibility of segregating illiquid bonds or money market securities. For example, if the credit rating of a bond falls below investment grade (BBB or lower), then that portion of the funds in the portfolio would be side-pocketed or segregated to protect investors. No transactions are possible in this separated segment – purchases or redemptions – until resolution of the bond crisis (either repayment or default).
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New mutual fund investors can first learn the basics of Debt Mutual Funds Explained for New Investors and then refer to this simple explanation of What is a ‘side-pocket’ in mutual funds? How does it work?
Parag Parikh Flexi Cap Fund has included the possibility of creating a segregated portfolio in the case of a credit downgrade to below BBB (aka as credit event) to comply with SEBI recommendation. At the time of writing the fund has not witnessed a credit event.