Parag Parikh Long Term Equity recategorized as Flexi Cap Fund


Parag Parikh Long Term Equity fund has received the necessary approval from SEBI (Securities and Exchange Board of India) with regards to recategorizing its name as well as category.

The fund was earlier named as Parak Parikh Long Term Equity Fund but with effect from January 13, 2021 would be known as Parag Parikh Flexi Cap Fund.

Parag Parikh Long Term fund was earlier a multicap mutual fund but henceforth would be recategorized as a flexicap mutual fund.





Scheme Name

Parag Parikh Long Term Equity Fund

Parag Parikh Flexi Cap Fund

Scheme Category

Multicap Fund

Flexi Cap Fund

parag parikh long term equity fund


Segregated Portfolio

Parag Parikh mutual fund has also decided to include provisions for a segregated portfolio in the SID (Scheme Information Document) of debt and money market instruments.


What is segregated portfolio in mutual fund schemes?

A segregated portfolio in a mutual fund scheme helps in:

  1. Reducing redemption pressure
  2. Reducing a big fall in nav of schemes
  3. Protecting good quality papers

Additional reading: Click Here to read about the various Types of Mutual Funds 

How a segregated portfolio helps?

Even though all AMC’s and mutual fund schemes have their own stringent internal evaluation systems in place, the fear of credit downgrade in portfolio companies is very much real.

The instrument that is downgraded becomes illiquid making it difficult for the fund manager to sell off the downgraded instrument.

If the downgraded instrument is not segregated, it affects the returns of the other portion of the portfolio thereby negatively affecting even the more liquid and better performing assets.


Are you investing in the right mutual funds?

The Securities and Exchange Board of India (SEBI) had on 11/09/2020 issued a circular bringing about changes to fundamental characteristics of Multi Cap mutual funds.

Existing rules for Multi Cap mutual funds

Presently multi cap mutual funds need to invest a minimum of 65% of total assets into equity.

This 65% is needed for any equity fund and not just multi cap mutual funds to qualify as equity funds which has a favourable tax proposition.

This 65% is only minimum which can even go up to 100% in case the fund manager so desires.

Whatever the allocation between 65% to 100%, there is no restriction with relation to large cap, mid cap or small cap stocks.

Revised rules for Multi cap mutual funds

Minimum investment of 75% into equity (as opposed to earlier rule of 65%) which would be divided in the following manner:

  1. Minimum 25% of investment into equity and equity related instruments of large cap companies (as opposed to n0 such restriction earlier).
  2. Minimum 25% of investment into equity and equity related instruments of mid cap companies (as opposed to no such restriction earlier).
  3. Minimum 25% of investment into equity and equity related instruments of small cap companies (as opposed to no such restriction earlier).

These proposals will come into effect within the first week of February 2021.


Additional reading: Click Here to read our complete report on everything that you should know about a Mutual fund NAV.

Parag Parikh Long Term Equity Fund strategy

Parag Parikh long term equity  has a focused approach despite being a multi cap fund.

It comparatively has higher cash holdings and is the only multi cap fund at the moment to have foreign holdings along with domestic companies.

The fund has a tendency to underperform in a bull phase of the market due to not succumbing to momentum picks and outperform its peers in a bear phase due to higher cash holdings along with a limited number of stocks.

With regards to its foreign holdings, historically it has stuck with US bluechip companies and that too within the IT space.

Suzuki Motor Corporation is the only exception to this, it is picked despite it being listed on the Indian stock exchange too due to its rather attractive valuation abroad.


parag parikh long term equity fund

Possible explanation for this new proposal

The regulator believes that most multi cap mutual fund schemes were basically large cap schemes in terms of their asset allocation disguised as multi cap funds.

These multi cap funds were therefore not true to their label.

There is an element of truth but existence of truth does not imply a lie part as well, the universe is not as binary as we believe so.

Sure, most multi cap funds presently are more large cap biased but we also need to understand the reasons behind the same rather than simply drawing conclusions based on current allocations

The Indian stock market has been more or less volatile during the last few years and large cap stocks provide more stability than mid and small cap stocks.

Large cap stocks do not face liquidity issues as much as mid and small cap stocks.

Are you investing in the right mutual funds?

The idea behind a multi cap fund is to allow the fund manager freedom to move around various sectors based on his understanding of the market.

A multi cap fund at the end of the day is still an actively managed fund that needs constant overlooking to make sure the overall portfolio is balanced.

Investors looked at multi cap funds as a safe and uncomplicated haven since they did not have the burden or compulsion of being confined to sectors like say in the case of mid cap, small cap, large & mid cap, thematic mutual funds, etc.

A multi cap fund was one fund where the fund manager would deviate across various sectors, caps and themes based on market movements.



Interesting facts about Parag Parikh long term fund

Exit Load : Unlike other equity mutual funds, Parag Parikh Long Term Equity Fund has a 2% exit load if redeemed within 365 days. This has been put into place to deter investors with a short term horizon in equity investing.

No Dividend Option : The fund does not offer dividend option so that investors can avail the true benefits of compounding.

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Disclaimer : While due precaution has been undertaken in the preparation of this article, The Mutual Fund Guide or any of its authors will not be held liable for any investments based on the above article. The above article should not be considered financial advice and has been published only for your perusal. Due credit has been given in case wherever required, in case you feel any part violates any rights then do get in touch with us and we shall get it duly removed.  
Mutual Fund investments are subject to market risks. Please read the offer document carefully before investing

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