Publish Date:
PPFAS Mutual Fund has recategorized its flagship Parag Parikh Long Term Equity Fund to a flexi cap fund. Going ahead, the new name of the scheme will be Parag Parikh Flexi Cap Fund.
Existing investors in Parag Parikh Long Term Equity Fund have received an email from the fund house stating a few fundamental changes in its flagship scheme, which includes the change in its category, its name, and a provision to create a segregated portfolio.
SEBI has defined flexi-cap fund as an open-ended dynamic equity scheme investing across large cap, mid cap, and small cap stocks.
Being categorized as a flexi cap fund, Parag Parikh Flexi Cap Fund will have the freedom to invest across large cap, mid cap, and small cap stocks in any proportion.
Parag Parikh Long Term Equity Fund was till now categorized as a Multi-cap Fund. It invests minimum 65% of its assets in domestic equities spread across market caps, whereas upto 35% of its assets is held in overseas equities.
Notably, in September 2020, the SEBI had defined new rules for multi-cap funds, which are required to invest at least 25% of the corpus each in large cap, mid cap and small-cap stocks. Earlier, the multi cap funds had the freedom to invest across market capitalizations and sectors based on the view of the fund manager.
This change in allocation mandate raised concerns for existing multi-cap funds (preferably with a large cap bias) as they will be forced to buy mid cap and small cap stocks despite these segments not having the liquidity to absorb large inflows from mutual funds.
Post this, the industry players had through AMFI, asked SEBI to create a new flexi-cap category, which will not have any such restrictions.
Parag Parikh Long Term Equity Fund is the first to re-categorize itself as a flexi-cap fund. Many other large cap biased multi cap funds too are likely to announce their recategorization into flexi-cap fund in the coming days.
In our view, the recategorization of Parag Parikh Long Term Equity Fund to a flexi-cap will not have any significant impact on the way this fund is managed. Under the new category and name the fund will continue to follow its current investment strategy as it offers complete flexibility for the fund.
Provision of Segregated Portfolio: The conditions in debt markets are not very safe and there have been many debt funds suffering from rating downgrades for some of their holdings. Considering this scenario, the fund house has also announced an inclusion of provision for creation of segregated portfolio for the debt portion of its portfolio.
Notably, after the SEBI allowed creation of segregated portfolios, almost all mutual fund schemes are creating an enabling provision of this nature in the debt portion of their schemes.
The new provision will be inserted in the Scheme Information Document (SID) of the scheme under the relevant section and will come into effect from January 13, 2021.