In terms of long-term wealth creation by using mutual funds, flexi-cap funds have become the most popular option among the keen and intellectually bright investors. Their tactical nature of investment vehicles provides flexibility to fund managers by allowing them to move between market capitalizations; thus, they are very appealing in the current volatile marketplace.
In this insight, we are going to carry out a detailed study of two best-performing flexi-cap funds, which have continuously given outstanding returns.
Parag Parikh vs HDFC – Performance analysis
Parag Parikh Flexi Cap Fund
Started in May 2013, Parag Parikh Flexi Cap Fund has become a benchmark fund in the lot of mutual funds. This fund has registered an expense ratio of 1.28% without falling short of the expectations since it manages assets worth 103,868 crore.
Performance Highlights:
- Since launch return: 19.22% annually
- 10-year return: 17.42% CAGR
- 5-year return: 25.28% CAGR
- 3-year return: 24.51% CAGR
The remarkable track that this fund has made shows that it has the potential to attain a lot of wealth. It would have increased 10 times to 5 lakhs in 10 years, provided the same amount of 1 lakh was invested as a lump sum.
In the case of SIP investors, 10 years of investment of 10000 INR in a month would have resulted in an amount of 34 lakhs with a CAGR of 20.83 percent.
HDFC Flexi Cap Fund
The HDFC Flexi Cap Fund, one of the oldest flexi-cap funds in India, was started on January 1, 1995, and is the fund that combines 30 years of market experience. This fund has stood two or more market cycles with AUM of 75,784 crore rupees and an experience ratio of 1.39% deductions.
Performance Metrics:
- Since launch return: 18.90% annually
- 10-year return: 15.40% CAGR
- 5-year return: 28.85% CAGR
- 3-year return: 27.78% CAGR
The fact that the fund has delivered consistent performance over 30 years demonstrates the soundness of its investment approach. Whereas, if you invested ₹1 lakh, you could have now held ₹4.19lakh on your hand, and a ₹10,000 SIP towards the same timeframe would now translate to ₹3.27 lakh for you.
Portfolio Composition and Investment Strategy
Parag Parikh’s
The Parag Parikh Flexi Cap Fund stands out in terms of its diversification strategy, whereby it has invested 68.96 percent of its asset value in domestic equities. The sector rotation indicates proportional exposure to large-cap stocks (52.95 percent), along with selective picks across mid-cap (2.39 percent) and small-cap (3.77 percent).
Further, the fund also holds 10.79% of debt securities that help sustain the fund in case of market declines. The strength of the fund is its 11.14 percent allocation to abroad equity ownership that provides foreign diversification to the shareholders, which is a limited asset in the mutual fund industry in India.
HDFC Flexi Cap Fund
HDFC Flexi Cap Fund has been taking a more classical route and is more geared towards domestic markets but still has the flexibility of market capitalization. The long-term performance of the fund, which is 30 years, indicates the ability of the fund to adjust its approach towards the investments in accordance with various market cycles.
Risk Assessment and Volatility Management
Both funds carry a “Very High Risk” rating, which is standard for flexi-cap funds. However, their risk-adjusted returns tell a compelling story. The Parag Parikh fund’s portfolio turnover ratio of 36.43% is significantly lower than the category average of 75.11%, indicating a more stable, long-term investment approach.
This lower turnover suggests that fund managers hold positions for longer durations, potentially reducing transaction costs and providing more stable returns. The HDFC fund, while maintaining higher turnover, has consistently managed risk through its diversified approach.
Tax Implications and Investment Considerations
Both funds follow standard equity taxation rules. Short-term capital gains (investments held for less than one year) are taxed at 20%, while long-term capital gains exceeding ₹1.25 lakh annually are taxed at 12.5%. This tax structure favors long-term investors, aligning with the funds’ investment philosophy.
Who Should Invest in These Funds?
Flexi-cap funds are ideal for investors seeking long-term wealth creation through equity markets while valuing professional portfolio management. These funds particularly suit investors who prefer not to choose the market. capitalizations themselves and want to delegate this complex task to experienced fund managers.
However, investors with short-term goals (less than three years) or those uncomfortable with high market volatility should consider alternative investment options.
Beyond Returns—Key Evaluation Factors
While returns remain crucial, successful investment decisions require consideration of additional factors:
Fund Manager Expertise: Both funds benefit from experienced management teams with proven track records and transparent investment strategies.
Portfolio Balance: The allocation across large, mid, and small-cap stocks reflects each fund’s risk management approach and growth strategy.
Cost Efficiency: The expense ratios of both funds remain competitive within the category, though Parag Parikh offers a slight advantage at 1.28% versus HDFC’s 1.39%.
Risk-Adjusted Returns: Both funds demonstrate strong Sharpe ratios, indicating effective risk management relative to returns generated.
Final advice by GI experts
Based on our deep research analysis, Parag Parikh Flexi Cap Fund should be considered as a good option by the SIP and lump sum investor on a long-term basis. It provides superior performance on a regular basis, a lower expense ratio and global diversification, and hence, it could serve as the finest means of wealth creation.
With a legacy of more than 30 years and having delivered good returns of 3 and 5 years, HDFC Flexi Cap Fund, on the other hand, has allured investors who wish for foreign direct investments since it has a steep past and experience in the market.
The two funds are good flexi-capfunds.The decision should be taken depending on the desire of investment, level of risk endured, and the method of investment. Financial advisors can also assist in fitting the correct weight to your portfolio.
