Parag Parikh Flexi Cap Fund: A stable wealth creator?

This fund has outperformed its benchmark 91 per cent of the time and the category 78 per cent of the time. Continue reading to learn more about this fund.

The Nifty 500 index has a good mix of large, mid, and smaller companies, with the top 100 stocks by market capitalization classed as large-cap, the next 150 as mid-cap, and the remaining 250 as small-caps. The Nifty 500 has had a spectacular run since the covid-induced restrictions were lifted. Furthermore, the index outperformed the Nifty 50 since it contains both mid-cap and small-cap stocks. 

This index is tracked by a variety of mutual funds, including multi-cap funds, flexi-cap funds, focused funds, and so on. One such fund, with a well-diversified investment strategy, is among them. The Parag Parikh Flexi-Cap Fund (formerly known as the Parag Parikh Long-Term Equity Fund) invests in both local and overseas markets. We evaluated the fund's performance by comparing its risk and return performance to that of its category and the benchmark it monitors. 

Note: The data used for calculations is that of direct plan. 

In a three-year rolling returns analysis, the fund outperformed its benchmark and category, with no negative returns in a single three-year period out of about 1,375 observations. The fund's three-year rolling median returns stood at 14.6 per cent whereas that of its category and benchmark were 12.9 per cent and 12.7 per cent, respectively. The minimum returns provided by the fund in all the three-year observations is 0.3 per cent. 

"A penny saved is a penny earned," is one of Benjamin Franklin's greatest phrases. This is also true while investing in mutual funds. The better your risk management, the more likely you are to create money over the specified investment horizon. As a result, risk is a crucial piece of the jigsaw when investing in mutual funds. So, let's put this flexi-cap fund to the test in terms of risk. As a risk indicator, we utilised maximum drawdown. 

The maximum downside of the Parikh Flexi-Cap fund is negative 31 per cent, whereas the maximum drawdown of its category and benchmark is negative 36 and 38 per cent, respectively. This signifies that, in terms of risk, the fund outperforms its category and benchmark index in terms of reducing downside risk. Furthermore, in the case of the Parag Parikh Flexi Cap Fund, there was no drawdown 19 per cent of the time, while the same for the category and benchmark is 11 per cent and 13 per cent, respectively. This demonstrates again how successfully this fund manages risk. 

Conclusion 

According to our findings, this fund works well in terms of risk and returns. However, even though the fund underperformed its benchmark and category by mere 9 per cent and 22 per cent of the time, respectively, the outperformance margin widened only after the pandemic. This can be ascribed to its allocation to overseas companies, notably stocks like Facebook, Amazon, and others. Prior to the pandemic, there was an outperformance, although it was by a small amount. The risk management, however, is the deciding factor here. The fund does an outstanding job of risk management. As a result, the fund has a favourable risk and return profile within its category.