In a significant move that has captured investor attention, Parag Parikh Financial Advisory Services (PPFAS) Mutual Fund has announced plans to launch a new large-cap fund. This development stands out because PPFAS has historically resisted the industry norm of frequently launching new schemes to gather assets.
The PPFAS Large-Cap Fund Strategy
The fund house detailed its strategy at a unitholders' meeting held on 22 November. The proposed Parag Parikh Large Cap Fund is not designed for investors seeking high-risk, concentrated bets or massive outperformance. Instead, its core objective is to deliver returns that are slightly better than those of plain index funds, while maintaining a similar cost structure.
Rukun Tarachandani, Executive Vice-President and Fund Manager at PPFAS MF, explained that the fund will achieve this through execution efficiencies. It will broadly mirror the Nifty 100 TRI (Total Return Index), offering exposure to India's top 100 companies by market capitalization. The fund will cap any single holding at 10%.
Costs and Benchmarking
A key selling point is the fund's expense ratio. The direct plan is projected to cost between 10 to 30 basis points, aligning it directly with the costs of existing Nifty 100 index funds. For context, the Axis Nifty 100 Index Fund charges 21 bps, while the HDFC Nifty 100 Index Fund charges 30 bps.
PPFAS has chosen the Nifty 100 as its benchmark for its broader coverage. Data presented at the meeting showed that the Nifty 100 covers 67% of the market capitalization and 75% of the profit pool of the top 500 listed companies, significantly more than the Nifty 50 or the Sensex.
The Execution Edge: How It Plans to Beat the Index
The fund's differentiation lies in its active management tactics designed to lower execution costs. Tarachandani outlined several smart strategies:
- Futures Market Advantage: Buying stocks in the futures market when they trade at a discount to the cash market to secure a lower entry price.
- Merger Arbitrage: Capitalizing on pre-merger price discrepancies, as was done during the HDFC-HDFC Bank merger.
- Index Rebalancing Tactics: Unlike index funds that trade only on the rebalancing day, causing price swings, this active fund can gradually accumulate stocks being added to the index, achieving better average prices.
Expert Opinion: Should You Invest?
Investment experts advise a cautious approach. Arun Kumar, a former head of research at FundsIndia, suggests that while the fund's concept is sound, passive investors should wait for a 1-2 year track record before committing capital.
Conversely, Avinash Luthria, a Sebi-registered investment advisor at Fiduciaries.in, remains skeptical. He prefers the predictability of a Nifty 50 Index Fund and is not willing to bet on an incremental cost for uncertain higher returns.
For long-term portfolios, experts like Aarati Krishnan of Primeinvestor.in still advocate for flexi-cap funds. They offer the flexibility to invest across market caps and are considered a better all-weather product, especially for SIP investors. Large-cap funds are often recommended only for tactical allocations.
The final verdict for now is that for investors seeking pure large-cap exposure, established index funds may be the safer choice until the PPFAS scheme can demonstrate a consistent performance history. The fund's launch is expected in about two months.
