Parag Parikh Long Term Equity Fund Review

Parag Parikh Long Term Equity Fund Performance Review

Published: November 18, 2018 at 11:11 am

Last Updated on

This is a performance review of Parag Parikh Long Term Equity Fund. Let us discuss what kind of investors should use this fund and who should avoid it. I have received many requests for this (3 just yesterday) and hence this post.

The weekly performance reviews (past ones are linked below) should not only serve as a review but also a tutorial for the DIY investor to make their own evaluations. Therefore, this time, I would like to focus on how to quickly review the performance of a mutual fund using the Value Research fund page. 

Yesterday, I published a video on how to do this with HDFC Top 100 Fund (also linked below) and in this post, let us discuss Parag Parikh Long Term Equity Fund in a similar way additional information.

Parag Parikh Long Term Equity Fund: Basic Information

This is a 5 year, 5-month-old fund started by the late Parag Parikh as he transitioned from a PMS service provide to a mutual fund house. In their own words, this fund uses similar value investing ideas to pick fundamentally strong stocks below their intrinsic values.

It can invest a small chunk of its AUM (~ 15-25%) in international stocks and tends to sit in cash (~ 10%) if it finds the market is not conducive for investment or if it cannot find value opportunities. It will, however, maintain 65% Indian stocks (including arbitrage) in its portfolio to maintain “equity-fund” status for taxation.

Note: Do not trust what you see in the portfolio break up chart on the  Value Research fund page VR calls arbitrage holdings as cash! If you look at the funds October 2018 factsheet, it has 46% stocks, 20% arbitrage (so 66% equity wrt taxation), international stocks 25% and cash ~ 9% (all approx). VR says this fund 20.5% of cash and cash equivalent! This is misleading. Do not tax decisions based on portfolio details that you see there! ALWAYS look at the fund factsheet or detailed portfolio breakup spreadsheet. Do not be lazy!!

It was earlier known as Parag Parikh Long Term Value Fund prior to the SEBI Fund categorization and decided to change its name to Parag Parikh Long Term Equity Fund and bin itself as a multi-cap fund (although it could have remained a value-oriented fund). It, however, will pick stocks in the pretty much the same way!

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. Of course, our DIY back-seat driving investors made a big deal about it as usual. You can read more about it here: Is PPFAS right to value Noida Toll Bridge lower than market price?

The fund is benchmarked to the Nifty 500 TRI, however considering where and how the fund can invest, it is pretty hard to find the right benchmark for it.

Another problem DIY investors have had with the fund is its high expense ratio for the direct plan – 1.43% for Oct 2018. They are aware of this has been trying to reduce this gradually. In my opinion, the reason why the direct plan has a high ER is that the AMC made its PMS investors direct fund investors and will relatively lose out on revenue from them if they reduce ER. Many potential investors do not like the high ER and I do not blame them.

If you look at the average AUM (in Lakhs) between July – Sep 2018 (data from AMFI)

Parag Parikh Long Term Equity Fund – Direct Plan – Growth:  99231.23

Parag Parikh Long Term Equity Fund – Regular Plan – Growth:  26787.26

So 78.7% of its Aum comes from direct. Probably Quantum Long Term Equity is the only fund which will have a similar distribution (because they did not have the regular option until recently).

This is also the reason why PPFAS meets its unitholder “directly” – something which distributors tend to frown upon (I wonder if the regular plan investors get the intimation of these meetings, probably not).

Disclosure

I am an NFO investor in this fund and have gradually increased exposure to it over the years impressed by the low volatility and current 1/3 of my retirement equity portfolio is in this fund. As an investor, I value low volatility in annualized return more than the return itself. So a fund offering me 12% but does not deviate too much from it (unless there is a big crash) is gold IMO. I would hold on to it. PPFAS has done well so far in this regard.

Warning

I hope people do not invest in funds because I hold them. That is what I like to believe anyway but friends tell me otherwise. Hence this warning. This fund is not for everyone, especially the impatient and restless investor. If you have high expectations with regard to downside protection and volatility management, and low expectations with respect to return, then this fund will do wonders for you.

Since this fund holds about 20-25% of international stocks (some from the US), you can expect it to react sharply if these stocks fall. The demise of Parag Parikh did not affect the performance of this fund because of the primary fund manager Rajeev Thakkar (in Mr. Parkikh’s own words – “very competent”). This is a double-edged sword and the fund’s performance can be affected if he leaves.

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So please keep in mind all these factors and most importantly learn to review a fund portfolio yourself

Performance Review

The fund is only 5 years old, so it doe not make much sense using the usual rolling returns graphs that I present. So I will only include the fingerprinting performance since inception and the rest you can watch the video. The current post is an update of the earlier review published in Sep 2016. Mutual Fund Review: PPFAS Long Term Value Fund

So what you see below is the monthly returns of the fund compared with Nifty 500 TRI and binned into four categories as labelled.

Parag Parikh Long Term Equity Fund Performance Review

Overall, that is a pretty decent performance.

Performance of my investments. So I have been investing on random dates (like when I have the money) for the last 5 years and the current annualized return is 13.3%. This is how they have evolved. This was created with the freefincal mutual fund and financial goal tracker

My investments in Parag Parikh Long Term Equity Fund Notice how the fund has reacted recently because of the fall in both US and Indian markets. Diversification will work only if international stocks react differently from Indian ones. You can argue that in a connected world that this will happen only when there is a 2008 kind of global disaster. Now, you can watch the video for the rest of the review.

Video Review: Parag Parikh Long Term Equity Fund

Watch and read my other fund reviews

HDFC Top 200 (how to quickly review performance

Motilal Oswal Nasdaq 100 Fund of Fund: Do not invest!

HDFC Mid-cap Opportunities

Read: HDFC Mid-Cap Opportunities Fund; Performance Review

Mirae Asset Hybrid Equity Fund

Read: Review: Mirae Asset Hybrid Equity Fund

ICICI Prudential Balanced Advantage Fund : Review

Read: ICICI Prudential Balanced Advantage Fund : Performance With Low Volatility

What other funds do you like reviewed?

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About the Author Pattabiraman editor freefincalM. 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 topics of money management. 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 on the basis of money management. Previous engagements include World Bank, RBI, BHEL, Asian Paints, Cognizant, Madras Atomic Power Station, Honeywell, Tamil Nadu Investors Association. For speaking engagements write to pattu [at] freefincal [dot] com
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