Suspension of Lump Sum investment in Parag Parikh Flexi Cap Fund surprised many investors. Parag Parikh Flexi Cap Fund yesterday announced the suspension of lump-sum investment. Because of this, many investors have doubts of what are the reasons and whether they should continue or not. Hence, thought to clarify through this post.
You can see this fund is recommended by me in my earlier post “Top 10 Best SIP Mutual Funds to invest in India in 2021“. Hence, thought to clarify my stand.
You may be aware that few days back, in a circular dated Jan 13th 2022, Motilal Oswal (MO) AMC announced the suspension of lump-sum investments and switch in (from other funds) into Motilal Oswal Nasdaq 100 Fund of Fund, Motilal Oswal S &P 500 Index fund and Motilal Oswal MSCI EAFE Top 100 Index fund.
Now Parag Parikh Flexi Cap Fund also followed the same route.
Why did Parag Parikh Flexi Cap Fund suspends the lump sum investment?
When I Tweeted yesterday about this news, many thought in different ways like few were thought it is because of they reached the highest point of AUM and now they are unable to handle the fresh inflow, to garner sudden AUM in the fund or with some other reasons of whatever they thought right.
However, in its notice from Parag Parikh AMC, they have clearly mentioned that they were forced to take this action mainly because they have to abide by industry-wide overseas limits as allowed by RBI and in terms of SEBI Circular no. SEBI/HO/IMD/IMD-II/DOF3/P/CIR/2021/571 dated June 03, 2021.
The current industry-wide overseas limit is US $ 7 billion. The limit for each mutual fund company has also a certain limit (US $ 1 billion per Mutual Fund).
In the case of PPFAS, they are suspending the fresh inflow into the scheme mainly because of to abide by the industry-wide overseas limits but not because fo their own limit crossed US $ 1 billion.
The current AUM of Parag Parikh Flexi Cap Fund is Rs.19,933 Cr. In this, they have an exposure of Rs.5,588 Cr in foreign securities (Alphabet, Microsoft, Amazon, and Meta) which is around 28% of the total AUM exposure and within the AMC limit of US $ 1 billion. Hence, the suspension of fresh inflow is to abide by the rules of RBI and SEBI towards the industry level limit.
Suspension of Lump Sum investment in Parag Parikh Flexi Cap Fund – RELAX!!
If you are an investor of this fund, then what to do? RELAX!! Let me share the complete notification of PPFAS in this regard, which clears the doubts of many.
It is clear from the above notification that the ongoing SIPs, STPs, inter-scheme transfer (regular to direct), redemptions, or SWPs will continue as usual.
Only the lump sum investments or fresh SIP registration is not allowed from 2nd February 2022. Hence, if you have ongoing SIPs, then you no need to worry.
However, if you are investing as a lump sum (rather than the automated SIP) on regular basis or as and when you have money, then you can’t invest in this fund from 2nd February 2022.
Even the fresh STP registration is not allowed from 2nd February 2022.
What to do if you are not an automated SIP investor of Parag Parikh Flexi Cap Fund?
Relax…Life is not going to end with the suspension of investment for time being in just one fund.
# If you don’t want to wait for the suspension to be removed (which is unknown to us), then shift to another Flexi Cap Fund like Axis or UTI. But be sure of what is your plan if PPFAS restarts the subscription of this fund. Whether you wish to continue with the new fund or with Parag Parikh Flexi Cap Fund.
# However, if you are fond of this fund and don’t want to touch another fund. Then accumulate the money of whatever you meant for this fund for few months (hoping the suspension will be removed in few months) and once the subscription will restart, then you can invest in one go.
# Personally I feel SEBI will act soon and enhance the limit. Hence, until that period better to accumulate and invest in this same fund rather than searching for a new fund for just few months of pause in this fund. In the end, missing investing in this fund for few months does not change your financial life in a big way. Hence, relax and wait!! However, if you have FOMO phobia that this decision impacts your goals or your financial life, then DON”T WAIT. Choose another fund and invest.