Parag Parikh Long Term Equity Fund: Relying on Time-Tested Investment Principles

Apr 09, 2020

Listen to Parag Parikh Long Term Equity Fund: Relying on Time-Tested Investment Principles

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We are in a never-seen-before chaos, not just in personal life but also the equity markets. The benchmark indices are down over 30% just within the last one month due to the spike in coronavirus cases.

But I believe that it has provided a great opportunity to invest for the long term. My observation suggests that after every deep slump markets bounce back sharply.

As many stocks have corrected sharply due to the mayhem in the market, valuation wise, they are placed attractively now. This makes it an opportune time to invest in equity mutual funds that follow a value style of investing.

Parag Parikh Long Term Equity Fund (PPLTEF) is one such fund under the multicap category that has rewarded investors in the past through its focus on value style of investing.

Graph 1: Growth of Rs 10,000 if invested in Parag Parikh Long Term Equity Fund 5 years ago

PPLTEF's superior performance over the last five years has helped generate significant lead over the benchmark. If you had invested Rs 10,000 in PPLTEF five years ago on April 8, 2015, it would have grown to Rs 13,696 now (as calculated on April 8, 2020). This translates into a compounded annualised growth rate of 6.5% which over 5 percentage points CAGR higher than its benchmark Nifty 500 - TRI. Despite following cautious investment strategy, PPLTEF has generated substantial alpha over its benchmark. It has done well to curb the downside during the ongoing corrective phase.


Graph 1
Data as on April 08, 2020
(Source: ACE MF)

Table: Parag Parikh Long Term Equity Fund's performance vis-a-vis category peers

Scheme Name Corpus (Cr.) 1 Year (%) 2 Year (%) 3 Year (%) 5 Year (%) 7 Year (%) Std Dev Sharpe
Canara Rob Equity Diver Fund 1,601 7.85 7.88 13.27 9.76 12.54 17.60 -0.01
JM Multicap Fund 128 8.79 4.79 12.82 12.19 15.32 18.29 -0.05
Edelweiss Multi-Cap Fund 545 4.10 5.46 12.76 7.00 NA 19.26 -0.04
Kotak Standard Multicap Fund 22,871 7.59 6.32 12.61 13.35 16.16 19.31 -0.07
Parag Parikh Long Term Equity Fund 2,448 6.92 8.37 12.55 12.10 NA 15.46 -0.02
DSP Equity Fund 3,523 10.33 6.01 12.07 10.78 14.10 20.05 -0.03
SBI Magnum Multicap Fund 8,494 6.30 4.87 11.12 13.12 15.39 18.98 -0.08
UTI Equity Fund 10,499 4.52 7.83 10.92 9.81 13.48 18.66 -0.03
HDFC Equity Fund 16,042 4.37 3.85 10.74 8.81 11.75 21.98 -0.10
Motilal Oswal Multicap 35 Fund 12,372 2.06 1.25 10.64 14.58 NA 19.85 -0.10
NIFTY 500 - TRI 2.62 3.85 10.33 8.91 11.07 19.63 -0.09
Returns are on a rolling basis and in %, calculated using Direct Plan - Growth option. Those depicted over 1-Yr are compounded annualised.
Data as on April 08, 2020
(Source: ACE MF)
*Please note, this table only represents the best performing funds based solely on past returns and is NOT a recommendation. Mutual Fund investments are subject to market risks. Read all scheme related documents carefully. Past performance is not an indicator for future returns. The percentage returns shown are only for indicative purposes.

PPLTEF has generated substantial lead over the benchmark and category average across rolling time periods. Over the longer time horizon of a 5-year rolling period, PPLTEF outperformed the category average and benchmark by over 2.5-3 percentage points. Its performance over the shorter time horizon is impressive as well.

Some of the other top performers in the category include Canara Robeco Equity Diversified Fund, Kotak Standard Multicap Fund, and DSP Equity Fund.

With a standard deviation of 15.46, PPLTEF's volatility is lowest in the category and far lower as compared to the benchmark. Moreover, its risk-adjusted return is one of the best in the category.

Investment strategy of Parag Parikh Long Term Equity Fund

PPLTE is categorised as a multicap fund. While the fund follows a multi-cap strategy, its orientation remains towards value style of investing where it aims to invest in quality stocks available at reasonable or attractive valuations. What differentiates PPLTEF from the rest is that it does not limit the portfolio to only domestic equities; the fund invests nearly one-third of its corpus in stocks of offshore companies.

However, an average of 65% of its corpus needs to be invested in listed Indian equities, in order to benefit from the favourable Capital Gains tax treatment accorded to equity schemes.

The fund follows an active investment strategy primarily based on a fundamental research-driven bottom-up stock selection approach. It focuses on key parameters like growth opportunities, sustainable competitive advantage, industry structure, margins, quality of the management, and protection of minority shareholders to pick stocks. PPLTEF makes its investments with a long term perspective and follows a buy and hold investment strategy, to realize the full potential of the stocks.

Graph 2: Top portfolio holdings in Parag Parikh Long Term Equity Fund

Graph 2 Graph 2
Holding in (%) as on March 31, 2020
(Source: ACE MF)

PPLTEF's investment universe is not restricted to any sector, market capitalisation or geography. Overseas equities like Alphabet Inc. and Amazon.com form the fund's biggest holding with allocation of around 9.3% each. Among domestic equities it has the highest allocation to HDFC Bank of 9.3%, followed by Bajaj Holdings & investment, Mphasis, Hero MotoCorp, ITC, ICICI Bank, and Persistent Systems.

About 31% of PPLTEF's portfolio is exposed to offshore equities. Banking and Finance together account for around 28% of its assets, followed by Infotech, Consumption, Pharma, and Auto & Auto Ancillaries.

Suitability

PPLTEF's flexibility to invest across market caps, sectors, and geographies enables it to deal with the changing market conditions. Its bet on fundamentally sound undervalued stocks has benefited the fund so far. But the compact portfolio size and exposure to global equities means that some of its prominent holdings may come under pressure during uncertainties in domestic or global markets such as the one we are seeing now and have a negative impact on its performance. Value-investment as a strategy requires patience to realise the full potential of stocks. This makes it suitable for investors having moderately high-risk appetite and a longer investment horizon of at least five years.

 

Warm Regards,
Divya Grover
Research Analyst

 

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Editor's note: The last few years have not been among the best for equity mutual funds. While most funds have underperformed or are struggling to match the returns of the benchmark, there are few funds that have the potential to constantly generate alpha for its investors. And we have identified five such high alpha generating funds, in our latest report 'The Alpha Funds Report 2020'. Do not miss our latest research finding. Get your access to this exclusive report, right here!

Note:   This write up is for information purpose and does not constitute any kind of investment advice or a recommendation to Buy / Hold / Sell a fund. Returns mentioned herein are in no way a guarantee or promise of future returns. As an investor, you need to pick the right fund to meet your financial goals. If you are not sure about your risk appetite, do consult your investment consultant/advisor. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.

 

DISCLOSURE AS PER SECURITIES AND EXCHANGE BOARD OF INDIA (RESEARCH ANALYSTS) REGULATIONS, 2014

About the Company including business activity

Quantum Information Services Private Limited (QIS) was incorporated on December 19, 1989.

QIS was promoted by Mr Ajit Dayal with an objective of providing value-based information/views on news related to equity markets, the economy in general, sector analysis, budget review and various personal products and investments options available to the Public. It was the first company to start equity research on an institutional level.

'PersonalFN' is a service brand of QIS and was started in the year 1999. In 1999, the Company registered the Domain name www.personalfn.com for providing information on mutual funds and personal financial planning, financial markets in general, etc. and services related to financial planning and research in various financial instruments including mutual funds, insurance and fixed income products to customers. It offers asset allocation and researched investment recommendations through its financial planning services.

Quantum Information Services Private Limited (QIS) is registered as Investment Adviser under SEBI (Investment Adviser) Regulations, 2013 and having Registration No.: INA000000680. In terms of the second proviso to Regulation 3 (1) of SEBI (Research Analysts) Regulations, 2014 the Company is not required to obtain Certificate of registration from SEBI.

Disciplinary history

There are no outstanding litigations against the Company, its subsidiaries and its Directors.

Terms and condition on which its offer research report

For the terms and condition for research report click here.

Details of associates

  1. Money Simplified Services Private Limited;

  2. PersonalFN Insurance Services India Private Limited;

  3. Equitymaster Agora Research Private Limited;

  4. Common Sense Living Private Limited;

  5. Quantum Advisors Private Limited;

  6. Quantum Asset Management Company Private Limited;

  7. HelpYourNGO.com India Private Limited;

  8. HelpYourNGO Foundation;

  9. Natural Streets for Performing Arts Foundation;

  10. Primary Real Estate Advisors Private Limited;

  11. HYNGO India Private Limited;

  12. Rahul Goel;

  13. I V Subramaniam.

Disclosure with regard to ownership and material conflicts of interest
  1. ‘subject company’ is a scheme on which a buy/sell/hold view or target price is given/changed in this Research Report;

  2. Neither QIS, it's Associates, Research Analyst or his/her relative have any financial interest in the subject Company; except for one of the associate holding units of Parag Parikh Long Term Equity Fund;

  3. Neither QIS, it's Associates, Research Analyst or his/her relative have actual/beneficial ownership of one per cent or more securities of the subject Company, at the end of the month immediately preceding the date of publication of the research report;

  4. Neither QIS, it's Associates, Research Analyst or his/her relative has any other material conflict of interest at the time of publication of the research report except that QIS (PersonalFN) is, as per SEBI (Mutual Funds) Regulations 1996, an associate / group Company of Quantum Asset Management Company Private Limited and Trustees and Sponsor of Quantum Mutual Fund (QMF) and to that extent there may be conflict of interest while recommending any schemes of QMF. However, any such recommendation or reference made is based on the standard evaluation and selection process, which applies uniformly for all Mutual Fund Schemes. The payment of commission (upfront / annualized & trail), if any, for any Schemes by QMF to QIS (PersonalFN) is also at arm's length and as per prevailing market practices.

Disclosure with regard to receipt of Compensation
 
  1. Neither QIS nor it's Associates have received any compensation from the subject Company in the past twelve months;

  2. Neither QIS nor it's Associates have managed or co-managed public offering of securities for the subject Company;

  3. Neither QIS nor it's Associates have received any compensation for investment banking or merchant banking or brokerage services from the subject Company;

  4. Neither QIS nor it's Associates have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months.

  5. Neither QIS nor it's Associates have received any compensation or other benefits from the subject Company or third party in connection with the research report

General disclosure
  1. The Research Analyst has not served as an officer, director or employee of the subject Company.

  2. QIS or the Research Analyst has not been engaged in market making activity for the subject Company.

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Subject Company means Mutual Fund Schemes

Quantum Information Services Private Limited CIN: U65990MH1989PTC054667 Regd. Office: 103, Regent Chambers, 1st Floor, Nariman Point, Mumbai - 400 021 Corp. Office: 103, Regent Chambers, 1st Floor, Nariman Point, Mumbai - 400 021.

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Add Comments

  • Respected Mam,With due respect to the chair this is for your information that in this situation I wish for invest my fund to currency market releated invest with your cooperation.I think it is better investment time for growth money near 3years. With Regards JoyatpalMukherjee,9933871975,Durgapur,WestBengal,India.

    joyatpal.ukherjee@gmail.com | Apr 20, 2020
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