A financial planner busts myth that PPFAS’s large AUM will hurt returns. Here’s his take

As Parag Parikh Flexicap Fund (PPFAS) crosses ₹1 lakh crore in assets, fresh scrutiny is emerging over whether its growing size could weigh on future performance — particularly in small-cap allocations. But financial planner Kirtan Shah says the alarm may be misplaced.

Writing on LinkedIn, Shah clarified that rising AUM does not automatically spell underperformance. “AMC-level risk is more significant than scheme-level size,” he noted.

He explained that while SEBI limits a single scheme’s exposure to any one stock, asset management companies (AMCs) running multiple equity schemes could end up with higher collective exposure — a risk less relevant for PPFAS, which runs fewer equity strategies.

The main constraint, Shah pointed out, arises in small-cap exposure. As a fund grows, it becomes harder to take concentrated positions in small companies without owning a significant portion of the business.

“In the small cap space, they will have to end up buying more number of stocks,” he wrote, noting that this leads to broader portfolios and more diluted exposure — a shift from the focused bets possible when AUM was smaller.

PPFAS has expanded its portfolio size to between 72 and 87 stocks, from a leaner roster earlier. Small-cap holdings remain modest, at just 3.77% of the fund’s total assets, with 2.39% in mid-caps and 52.95% in large caps — a clear shift toward more liquid names.

Shah also suggested that performance pressures on large AUM funds are most visible in small-cap categories, not diversified flexicap schemes like PPFAS. The challenge, he implied, is not the fund’s size but how it’s managed. That includes adjusting stock count and cap allocation to avoid liquidity and compliance traps.

While PPFAS may not repeat its early, outsized returns, it continues to outperform benchmarks on rolling returns — a sign that strategic adjustments are working. The real systemic risk, Shah noted, lies with AMCs where multiple large schemes crowd into the same stocks, not with single-scheme giants like PPFAS.