This is a performance review of Parag Parikh Long Term Equity Fund. We shall look at its portfolio history and evaluate its trailing return performance (lump sum and SIP).
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Let us begin with some history. The fund was started in May 2013 by the late Parag Parikh as he transitioned from a PMS service provide to a mutual fund house. It was known as PPFAS Long Term Value Fund. When the SEBI mutual fund classifications came out, the fund was re-classified as a multi-cap fund and re-named Parag Parikh Long Term Equity Fund with no other change in investment strategy.
In October 2016, it courted controversy when the Allahabad High Court made the Delhi-Noida-Direct Flyway toll-free. PPFAS held about 2.8% of the stock and it voluntarily devalued the stock lower than the market price for a day as the shares were locked in the lower circuit. Since they were able to sell off the entire holding (the next day if memory serves me right), there was not much damage. You can read more about it here: Is PPFAS right to value Noida Toll Bridge lower than market price?
Even a casual glance at its performance since inception should tell you that the fund has done quite well. The fund has everything going for it: A competent fund manager, a history of performance as both a PMS and an MF house The fund has come out of its biggest crisis till date (the March 2020 crash) in glowing colours. There is however one problem.
The fund (the AMC) is dependent too much on Rajeev Thakkar. If he is no longer the fund manager, the future performance of fund would be in severe doubt. Investors already had a scare: On May 3rd 2015, Parag Parikh died in a car accident in the USA. Rajeev Thakkar the fund manager and AMC CIO was behind the wheel and for a brief while, there was speculation that he could be arrested.
This risk bears heavily on my mind as the fund occupies a huge chunk of my retirement equity portfolio. I am an NFO investor in this fund. This is the key reasoning behind choosing an index fund over an active fund. At least new investors can do this with little inertia.
Investment Strategy
The fund’s central tenet is buying stocks that trade at a discount to their intrinsic value. As a multi-cap fund, it has no restrictions on sectors or market cap. It would hold 65% of domestic equity at all times. It can hold up to 35% in cash and up to 35% in international equity. Benchmarked to Nifty 500 TRI, it would try and hold about 20 -25 stocks (although this could change with an increase in AUM).
Parag Parikh Long Term Equity Fund Asset Type Allocation History
The fund has considerable history in where it can invest as is evident from the asset allocation history.
Expense Ratio History
Because of the funds PMS legacy (PMS investors were asked to move to the direct plan), the expense ratio for the direct plan was quite high (the bulk of the AUM was/is here). Good to see it fall down to more acceptable levels.
According to AMFI, 70% of the Average Assets under Management for the quarter of April – June 2020 is in the direct plan.
Trailing Return Comparison
| Duration | Parag Parikh Long Term Equity Fund(G)-Direct Plan | NIFTY 500 – TRI |
| 1 Month | 6.72 | 5.90 |
| 3 Months | 25.90 | 19.87 |
| 6 Months | 5.52 | -8.47 |
| 9 Months | 12.38 | -2.97 |
| 1 Year | 17.85 | -0.17 |
| 2 Years | 8.86 | -0.21 |
| 3 Years | 11.63 | 2.86 |
| 4 Years | 13.69 | 7.24 |
| 5 Years | 11.63 | 6.28 |
| 6 Years | 12.61 | 7.69 |
| 7 Years | 16.80 | 11.32 |
SIP Performance
| SIP Tenure | Parag Parikh Long Term Equity Fund(G)-Direct Plan | NIFTY 500 – TRI |
| 1Y | 31.3 | 10.2 |
| 2Y | 17.2 | 2.6 |
| 3Y | 13.4 | 1.9 |
| 4Y | 13.5 | 4.1 |
| 5Y | 13.6 | 6.0 |
| 6Y | 13.2 | 6.3 |
| 7Y | 14.3 | 7.9 |
There can be no question that the fund has had a fantastic run. How long can it last? How long can the AMC depend on one person? Will the fund navigate the troubled waters over the next few months well? Will the law of averages catch up with the fund? These are questions that confront new and existing investors. Only time will tell.
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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. since Aug 2006. Connect with him via Twitter or Linkedin Pattabiraman has co-authored two print-books, You can be rich too with goal-based investing (CNBC TV18) and Gamechanger and seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation to promote unbiased, commission-free investment advice. He conducts free money management sessions for corporates and associations based on money management. Previous engagements include World Bank, RBI, BHEL, Asian Paints, Cognizant, Madras Atomic Power Station, Honeywell, Tamil Nadu Investors Association, IIST Alumni Association. For speaking engagements, write to pattu [at] freefincal [dot] comAbout freefincal & its content policy Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on developments in mutual funds, stocks, investing, retirement and personal finance. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than one million readers a year (2.5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified from credible and knowledgeable sources before publication. Freefincal does not publish any paid articles, promotions, PR, satire or opinions without data. All opinions presented will only be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
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