About a month ago, Parag Parikh Flexicap Fund decided to stop fresh inflows into its flagship scheme. It reopens today.
Why did it stop, in the first place?
Well, the overall foreign investment limit for the mutual fund industry and each fund house has been defined in the regulations. The industry was very close to reaching that limit and to ensure that the situation did not come up, all funds with international investment mandates decided to stop taking new inflows, temporarily.
Parag Parikh Flexicap Fund invests about 30% of its portfolio in stocks outside India. As a precautionary measure, the fund also taking stopped fresh investments.
What was supposed to be temporary doesn’t look like that anymore. The regulators (SEBI with RBI) had to come out with the future course of action and updates, but there has been no news so far.
So, why open up now?
The wait has been too long and the domestic market, at least, is throwing up opportunities. Keeping that in mind, the fund house has decided to open up to fresh inflows.
While PPFAS as a fund house may still continue to invest in foreign securities to some extent, it won’t be able to do so, if overall industry limit is breached.
There is another thing. If the fund gets a large amount of new investments, it will be forced to invest them in India securities only. This means the ratio of foreign securities will go down (specially vis a vis its historical holding trend of about 30% of the portfolio).
The fund has an AUM of Rs. 20,000 crores.
Should you continue to invest in Parag Parikh Flexi Cap fund?
Obvious question for most investors. If the portfolio structure is about to change, does it still remain relevant for the portfolio.
Well, the fund’s expertise or investing style has not changed. It uses international stocks to get access to a wide variety of businesses.
With the opportunity set currently limited to India, there does seem to be a handicap emerging. However, it doesn’t make the fund bad.
If for a longer period, the international avenues don’t open up, then investors will have to pick other options to provide for the international diversification.
Check with your advisor, what’s the best course of action for your portfolio.