How PPFAS combines active and passive in its new Large Cap Fund

What makes the Parag Parikh Large Cap Fund unique enough to invest?

The top 100 companies in India are classified as Large Cap companies. Large Cap funds have this universe and these companies are widely followed. In this segment, many investors and advisors choose to take the passive route. We have tried to offer a fund at an expense ratio around that of passive funds while taking advantage of a number of active, rules-based strategies that the fund can potentially benefit from. It is an active fund, but is passively managed. Help us understand the mechanism of the active-passive style and how much would be the share of active stock selection in the total portfolio?

The active part of the portfolio will depend on the opportunities that arise in the market. There may be periods where the active share is very low and there may be periods where the active share is quite high. Overall, one can expect an active share of less than 20%, although there may be periods when this share is briefly exceeded.

The fund also looks for arbitrage opportunities in mergers and other special situations. How large and regularly can such arbitrage opportunities occur in the top 100 stocks?

These possibilities are irregular in nature, but relatively common. Mergers/splits and spin-offs in the top 100 companies could be 2-3 per year based on the recent past. Futures prices trading at discounts in the money market are also relatively common. The index is rebalanced twice a year, which results in a few stocks being added to the index and a few stocks being excluded.

How much alpha can you achieve with the 5 smart execution strategies compared to a Nifty Top 100 index fund?

Investment funds are not products with a guaranteed return and are market-related. Regulations prohibit predicting future returns. However, this arrangement is not suitable for investors who want to generate returns that differ substantially from those of the underlying benchmark.

PPFAS Flexicap Fund has a very strong fan following and is also the largest equity fund in India. What does it mean for your existing flexicap investors? Who should combine flexicap with a large cap fund?

For investors looking for a highly active portfolio with some concentration in the best ideas and where there is flexibility to invest across market capitalization, the Parag Parikh Flexicap Fund remains the choice. For investors who want large-cap exposure to the Indian equity markets at a low cost and where the portfolio does not differ too much from the underlying benchmark, the new fund Parag Parikh Large Cap Fund would be a relevant choice. Of course, many investors may choose to invest in both schemes in the proportion that suits their objectives.

Will it follow the same principle of value investing that PPFAS is known for?

Since this plan will have a low active share, it will not follow the flexicap approach to investing.Do you think Nifty50 is better for an investor looking for largecap exposure, or top 100 stocks? And why.

Globally, passive investing involves investing in a broad package of securities. For example, in the US, most passive investors would choose the S&P 500 index tracking funds. In India, we have traditionally followed BSE Sensex 30 and NSE Nifty 50. From a risk reduction perspective, a Nifty 100 index will have more diversification compared to Nifty 50.