When PPFAS Mutual Fund—popularly known as Parag Parikh Mutual Fund, after its eponymous late founder—published its September factsheet earlier this month, it made heads turn. More often than not in the past, this investor favourite had dazzled the market with its returns. But this time, the numbers were underwhelming, to say the least.
The one-year return of Parag Parikh Flexi Cap Fund, the flagship scheme of the asset management company, was minus 5.68% for the year ended September 2022. Far worse than the minus 0.22% returns of the Nifty 500 TRI TRI Total Returns Index An index that takes into account both price movements of the underlying stocks and the dividends they declare , the scheme’s benchmark. The flexi-cap fund—which allows the fund house to invest across firms of different market capitalisation—had been lagging the benchmark for a couple of months before it slipped into negative territory in September.
The needle of blame points towards the scheme’s unique selling proposition (USP)—a 65%-local-35%-global investing approach that it pioneered in India. More specifically, towards the leeway to invest abroad and the Reserve Bank of India’s (RBI’s) cap cap The Ken RBI’s $7 billion damper on India’s overseas investments Read more on it. India’s capital-markets regulator Securities and Exchange Board of India (Sebi) prohibited mutual funds from investing in foreign securities from 2 February to prevent the breach of the overall $7 billion limit set by the central bank.
What was a boon earlier is anything but in 2022. After a dream run in 2020 and 2021, the scheme’s global investments took a beating from the massive sell-off in US tech stocks this year. Microsoft, Amazon, and Alphabet are down about 30% since January, while Meta Platforms (formerly Facebook Inc.) is down 60%.
This kind of decline was last seen in 2008 and 2000, according to Dhirendra Kumar, founder of mutual-fund research firm Value Research.
Moreover, the PPFAS fund finds its hands tied due to the RBI cap. It’s unable to buy these stocks at attractive post-crash valuations. The mutual-fund industry was hoping for a quick easing of the restriction, but there’s no relief even nine months down the line. As a result, the share of foreign investments in the scheme’s portfolio is now down to 18% from 29% in January.
Besides, its domestic portfolio has put up a mixed show in the past year with stocks like the cigarette-to-FMCG giant ITC doing well, while those like power-trading platform Indian Energy Exchange (IEX) taking a knock. In short, the scheme finds itself in a returns squeeze.
So, have the scheme’s investors been voting with their feet? Money, after all, chases returns. But the reality is far from it.