HDFC Flexi Cap vs Parag Parikh Flexi Cap: A Battle of Top Flexi Cap Performers

This flexibility enables mutual funds to capitalise on opportunities across different market capitalisations, making them well-positioned to weather market fluctuations and navigate both domestic and global uncertainties.

In 2024, India’s equity markets are facing challenges such as election-related volatility and geopolitical tensions, which add uncertainty to the economic landscape. The election frenzy often leads to market swings as investor sentiment fluctuates based on political developments, policies, and expectations around the outcome.

Flexi Cap funds, with their adaptable nature, can shift their focus towards sectors or stocks expected to perform well regardless of the political scenario. For instance, they may increase exposure to defensive sectors like FMCG or healthcare during times of market nervousness or capitalise on growth sectors when the political environment stabilises.

[Read: Flexi Cap Funds v/s Multi Cap Funds: Which Is Better at a Market High?]

Additionally, geopolitical tensions, such as those arising from international trade disputes, military conflicts, or other global uncertainties, could disrupt market trends, particularly in sectors heavily dependent on global trade or supply chains.

The current volatile market conditions and the potential for political and geopolitical disruptions make Flexi Cap funds a prudent choice for investors. Their ability to adjust allocations between large, mid, and small-cap stocks allows them to take advantage of market opportunities while managing risks. Investors looking for a flexible, adaptive approach to equity investment, especially in uncertain times, are likely to continue to find value in Flexi Cap funds as a long-term investment strategy.

Two of the most popular contenders in the Flexi Cap segment are HDFC Flexi Cap Fund and Parag Parikh Flexi Cap Fund. This comprehensive analysis delves into a head-to-head comparison of these funds, equipping you with the knowledge to make an informed investment decision.

Note: In my previous article I have covered the two flexicap funds with highest return in the segment, you may consider reading – Quant Flexi Cap Fund vs. JM Flexi Cap Fund: Which One’s Better?

# - HDFC Flexi Cap Fund

HDFC Flexi Cap Fund belongs to HDFC Mutual Fund, one of India's largest and most reputed AMCs. It is an open-ended equity scheme that invests across large, mid, and small-cap stocks, giving it the flexibility to allocate funds dynamically across market capitalisations based on market opportunities and economic conditions.

HDFC Flexi Cap Fund is indeed one of the older and established schemes in the Flexi Cap segment in India. Initially launched in January 1995 as HDFC Equity Fund, it was later reclassified as a Flexi Cap fund in 2020 following SEBI's categorisation reforms. This change allowed the fund to maintain its broad investment mandate while adapting to the specific requirements of the Flexi Cap category. Currently, it holds an AUM of Rs 66,225.06 crores (as of Sept 30, 2024) and is benchmarked against Nifty 500 - TRI.

# - Parag Parikh Flexi Cap Fund

Parag Parikh Flexi Cap Fund (previously known as Parag Parikh Long Term Value Fund) is an open-ended equity scheme and belongs to Parag Parikh Mutual Fund. It is a well-established flexi cap mutual fund scheme launched in May 2013 and currently holds an AUM of Rs 82,441.07 crores (as of Sept 30, 2024).

The fund offers exposure to both Indian and international stocks, providing a diversified portfolio with a focus on long-term wealth creation. It has quickly gained popularity among investors due to its unique investment approach, seasoned management, and consistent performance. Parag Parikh Flexi Cap Fund is benchmarked against Nifty 500 - TRI.

Investment Style and Philosophy:

HDFC Flexi Cap Fund has grown in size over the years. Given its long history, the HDFC Flexi Cap Fund has gone through multiple market cycles, providing insights into its performance during both bull and bear markets. This history makes it easier for investors to assess the fund's long-term potential, risk profile, and consistency.

Over its long tenure in the Flexi Cap space, the fund has demonstrated competitive returns and has been able to maintain a relatively balanced risk-return profile by shifting allocations across market caps based on economic conditions.

Parag Parikh Flexi Cap Fund is known for its concentrated portfolio with a limited number of high-conviction stocks. The fund's low portfolio turnover reflects its buy-and-hold philosophy, aiming to maximise compounding over time rather than frequent trading.

Unlike many Indian mutual funds, PPFCF allocates a portion of its assets to global equities, including well-known international companies (such as Alphabet, Amazon, and Microsoft). This exposure helps in diversifying risks and capitalising on global growth trends, which may provide stability if the Indian market is volatile.

[Read: Highest Return Mutual Funds in the Last 10 Years - Flexi Cap Fund Category]

• Performance Comparison: Rolling Returns

  Scheme Name	Absolute (%)	CAGR (%)
  	1 year	3 Years	5 Years	7 Years	10 Years
  HDFC Flexi Cap Fund (G)-Direct Plan	39.55	27.09	21.82	18.08	17.42
  Parag Parikh Flexi Cap Fund (G)-Direct Plan	37.57	21.75	25.14	21.05	19.86
  Flexi Cap - Category Average	34.49	19.76	19.73	16.32	16.77
  Benchmark - Nifty 500 TRI	34.21	19.00	19.12	16.00	15.55

  Data as of November 07, 2024 Do note past performance is not an indicator of future returns
  The securities quoted are for illustration only and are not recommendatory.
  (Source: ACE MF, data collated by PersonalFN Research)

  Historical data shows that both funds have delivered substantial returns across most timeframes, outperforming the category average and benchmark returns.

  HDFC Flexi Cap Fund boasts a commendable track record over the long term, consistently delivering competitive returns to investors. Parag Parikh Flexi Cap Fund shows a substantial performance compared to it's peers.

  Looking at absolute returns over the last year, HDFC Flexi Cap Fund delivered an impressive return of 39.55%, outperforming both the Parag Parikh Flexi Cap Fund (37.57%) and the category average (34.49%). Parag Parikh Flexi Cap Fund, though slightly behind HDFC Flexi Cap, still exceeded the category average and benchmark returns.

  In the 3-year and 5-year timeframes, the performance of these funds reveals a shift. While HDFC Flexi Cap Fund holds a steady CAGR of 27.09% over three years and 21.82% over five years, Parag Parikh Flexi Cap Fund generated 21.75% and 25.14%, respectively. Here, Parag Parikh shines over the five-year period, outperforming both HDFC and the category average. This is likely due to its buy-and-hold strategy and selective international investments, which have contributed to long-term resilience and strong compounding, especially when markets faced volatility during this period.

  Over the longer term, HDFC Flexi Cap Fund posted a CAGR of 18.08%, while Parag Parikh recorded 21.05%. Over ten years, HDFC maintained a steady return of 17.42%, while Parag Parikh outperformed with 19.86%. These returns highlight Parag Parikh's ability to leverage global diversification and value-based stock picking for sustained growth, which seems to provide an edge over longer periods. HDFC, although slightly behind, has shown consistent performance close to the category average, indicating stability in its predominantly Indian equity portfolio.

  Overall, both Parag Parikh Flexi Cap Fund and HDFC Flexi Cap Fund have delivered competitive returns, showcasing exceptional performance. Both funds, thus, offer unique value propositions within the Flexi Cap category, catering to different investment objectives and risk preferences. However, it's important to note that this higher return comes with slightly higher volatility.

  While both the scheme's historical performance is encouraging, it's crucial to remember that past performance doesn't guarantee future results. Conduct thorough research and consider your risk tolerance and investment goals before making investment decisions.

• Portfolio Composition: Asset Allocation of Schemes

  Both HDFC Flexi Cap Fund and Parag Parikh Flexi Cap Fund are popular amongst investors in the Flexi Cap segment, but their asset allocation strategies differ slightly.

  Scheme Name	Large Cap %	Mid Cap %	Small Cap %
  HDFC Flexi Cap Fund	74.60	2.52	9.83
  Parag Parikh Flexi Cap Fund	59.68	5.46	4.35

  Data as of September 30, 2024 Do note past performance is not an indicator of future returns
  The securities quoted are for illustration only and are not recommendatory.
  (Source: ACE MF, data collated by PersonalFN Research)

  Both funds are primarily invested in large-cap companies. With 74.60% of its assets allocated to large-cap stocks, the HDFC Flexi Cap Fund has a strong bias towards established, blue-chip companies. This heavy large-cap allocation provides a level of stability and reduces the volatility that can be associated with smaller companies, making it a relatively conservative option within the Flexi Cap category. Meanwhile, HDFC Flexi Cap has limited exposure to mid-cap (2.52%) and small-cap (9.83%) stocks, focusing primarily on stability and consistent returns over time.

  In contrast, the Parag Parikh Flexi Cap Fund shows a more balanced approach in its asset allocation, with 59.68% in large-cap stocks. This large-cap allocation is slightly lower than HDFC Flexi Cap's, indicating Parag Parikh's willingness to explore growth opportunities outside of large caps. Its exposure to mid-cap (5.46%) and small-cap (4.35%) stocks is higher than HDFC Flexi Cap, which aligns with Parag Parikh's investment philosophy of capturing growth potential through a diversified approach.

  The HDFC Flexi Cap Fund's asset allocation approach suits investors with lower risk tolerance, as it heavily favours large-cap stocks, which are generally more stable and established. Its modest allocation to small and mid-cap stocks adds a minor growth component without significantly increasing risk.

  On the other hand, the Parag Parikh Flexi Cap Fund's allocation strategy offers greater diversification by spreading investments more evenly across market capitalisations. Although large caps form the bulk of its portfolio, the fund's allocations to mid and small-cap stocks signal its readiness to capture growth opportunities across sectors and company sizes.

  Both funds follow distinct asset allocation strategies to align with their investment philosophies and target investor profiles.

  [Read: 4 Best Flexi Cap Funds for 2024 - Top Performing Flexi Cap Mutual Funds in India]

• Market Volatility: Risk Profile of Schemes

  The equity market experiences constant ups and downs, and Flexi Cap funds are particularly susceptible to these fluctuations.

  Risk Ratio (3 years)	HDFC Flexi Cap Fund	Parag Parikh Flexi Cap Fund
  Standard Deviation	13.70	11.92
  Sharpe Ratio	0.36	0.26
  Sortino Ratio	0.78	0.48

  Data as of September 30, 2024
  Do note past performance is not an indicator of future returns
  The securities quoted are for illustration only and are not recommendatory.
  (Source: ACE MF, data collated by PersonalFN Research)

  HDFC Flexi Cap Fund appears to be riskier, with a higher Standard Deviation (13.70) compared to Parag Parikh Flexi Cap Fund (11.92). This implies that HDFC Flexi Cap Fund has greater fluctuations in its returns, which can be attributed to its dynamic allocation across Indian large-cap, mid-cap, and small-cap stocks. Meanwhile, Parag Parikh Flexi Cap Fund, with lower volatility, benefits from a global diversification approach by including international equities, which tends to moderate the impact of Indian market volatility.

  In terms of risk-adjusted returns, HDFC Flexi Cap Fund's higher Sharpe Ratio indicates greater efficiency in generating returns per unit of risk, likely due to its active management and focus on high-growth opportunities across market caps. In contrast, Parag Parikh Flexi Cap Fund's lower Sharpe ratio suggests modest returns per unit of risk, aligning with its conservative, stability-focused approach and international diversification.

  HDFC Flexi Cap Fund's higher Sortino Ratio (0.78 vs 0.48) indicates better downside protection, appealing to investors seeking balanced growth with risk management. Parag Parikh Flexi Cap Fund's lower Sortino Ratio reflects its conservative approach, prioritising stability and consistent returns over high risk-adjusted growth.

• Top Holdings of the Flexi Cap Schemes:

  HDFC Flexi Cap Fund		Parag Parikh Flexi Cap Fund
  Company	% Assets	Company	% Assets
  HDFC Bank Ltd.	9.42	HDFC Bank Ltd.	8.13
  ICICI Bank Ltd.	9.23	Power Grid Corporation Of India Ltd.	7.29
  Axis Bank Ltd.	8.56	Bajaj Holdings & Investment Ltd.	6.72
  HCL Technologies Ltd.	4.83	Coal India Ltd.	6.04
  Cipla Ltd.	4.80	ITC Ltd.	5.55
  Bharti Airtel Ltd.	4.65	ICICI Bank Ltd.	5.11
  Kotak Mahindra Bank Ltd.	4.62	Maruti Suzuki India Ltd.	4.89
  SBI Life Insurance Company Ltd.	4.46	HCL Technologies Ltd.	4.08
  Maruti Suzuki India Ltd.	4.20	Axis Bank Ltd.	3.53
  Piramal Pharma Ltd.	2.47	Facebook	3.44

  Data as of September 30, 2024
  Do note past performance is not an indicator of future returns
  The securities quoted are for illustration only and are not recommendatory.
  (Source: ACE MF, data collated by PersonalFN Research)

  While past holdings don't necessarily dictate future positioning, analysing the top holdings of these Flexi Cap funds offers valuable insights into their investment philosophies and sector preferences.

  In HDFC Flexi Cap Fund, the top holdings are heavily weighted toward large financial institutions, with HDFC Bank (9.42%), ICICI Bank (9.23%), and Axis Bank (8.56%) being the largest allocations. This indicates a strong inclination towards the financial sector, as these banks account for a significant portion of the portfolio, suggesting that the fund aims to leverage the growth and stability of large financial entities in India.

  In contrast, the Parag Parikh Flexi Cap Fund has a more diversified top-holdings structure, including a mix of financial, utility, and consumer goods companies, along with selective international exposure. The top holdings include HDFC Bank (8.13%) and Power Grid Corporation of India (7.29%), reflecting a more balanced allocation between financials and utilities. Notably, the fund includes Coal India (6.04%) and ITC Ltd. (5.55%), indicating a tilt towards energy and consumption sectors.

  In terms of sector allocation, HDFC Flexi Cap Fund appears heavily weighted toward Indian financials and technology, indicating a focus on sectors with steady growth potential in India. On the other hand, Parag Parikh Flexi Cap Fund showcases a more balanced approach across sectors, including domestic utilities and consumer stocks, along with selective international names, suggesting a strategy aimed at balancing growth with stability.

• Expense Ratio of the Schemes

  When comparing flexi cap funds, the Expense Ratio, which represents the annual fee charged, plays a crucial role in determining your returns. Here's a quick breakdown of HDFC Flexi Cap Fund vs Parag Parikh Flexi Cap Fund:

  Scheme Name	Direct Plan Expense Ratio	Regular Plan Expense Ratio
  HDFC Flexi Cap Fund	0.77%	1.43%
  Parag Parikh Flexi Cap Fund	0.63%	1.33%

  Data as of September 30, 2024
  Do note past performance is not an indicator of future returns
  The securities quoted are for illustration only and are not recommendatory.
  (Source: ACE MF, data collated by PersonalFN Research)

  Parag Parikh Flexi Cap Fund offers a lower expense ratio in both the regular and direct plan, indicating higher net returns for investors compared to HDFC Flexi Cap Fund, and it also offers a cost advantage to investors. There is a slight difference in the expense ratio under the regular plan for both schemes.

  Remember, a lower Expense Ratio translates to potentially higher returns over time. Over the long term, even a seemingly small difference in Expense Ratio can accumulate and significantly impact your returns.

• Suitability of Investors to the Schemes:

  HDFC Flexi Cap Fund, with its higher volatility and active management strategy, may be better suited for investors who are comfortable with short-term fluctuations and are seeking higher returns over the long term. It is particularly appealing to investors with a high-risk appetite, focusing on maximising returns during bull markets while accepting the volatility inherent in equities.

  Parag Parikh Flexi Cap Fund is more suitable for investors with a moderate risk tolerance who are looking for a more balanced approach. Its strategy of investing in a mix of Indian and global equities provides diversification, which helps in reducing risk. Its focus on value investing and international exposure makes it an attractive option for those seeking steady growth without excessive reliance on the domestic market, particularly during times of high market volatility.

  Both schemes are suitable for investors willing to accept moderate to high volatility in exchange for higher potential returns. And for the ones with a long-term investment horizon of at least 5-7 years or more.

To summarise...

Looking ahead, the future outlook for Flexi Cap funds in India remains positive, especially as the economy continues to grow despite challenges. The market's volatility, especially in the short term, may encourage more investors to turn to Flexi Cap funds as they offer flexibility and the potential for high returns in uncertain times.

As the Indian economy continues to open up and new growth sectors emerge, Flexi Cap funds, which can actively allocate across different market segments, will remain an appealing choice for investors seeking balanced growth with a diversified risk profile.

However, careful research and consideration of your risk tolerance are crucial before investing in any Flexi Cap fund. Both HDFC Flexi Cap Fund and Parag Parikh Flexi Cap Fund are strong contenders but cater to different investor profiles.

Ultimately, the best choice depends on your individual risk appetite and investment goals. Consulting a SEBI-registered financial advisor can be invaluable to ensure optimal alignment with your specific investment objectives. Remember, a well-diversified portfolio across market caps/sectors and asset classes may help manage overall risk while potentially benefiting from its growth potential.

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MITALI DHOKE is a Research Analyst at PersonalFN. She is an MBA (Finance) and a post-graduate in commerce (M. Com). She focuses primarily on covering articles around mutual funds including NFOs, financial planning and fixed-income products. Mitali holds an overall experience of 4 years in the financial services industry.
She also actively contributes towards content creation for PersonalFN’s social media platforms in the endeavour to educate investors and enhance their financial knowledge.
 

Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.
This article is for information purposes only and is not meant to influence your investment decisions. It should not be treated as a mutual fund recommendation or advice to make an investment decision in the above-mentioned schemes.