Does Big AUM Hurt Performance? The Truth Behind PPFAS’s Growth.

Does Big AUM Hurt Performance? The Truth Behind PPFAS’s Growth

As the Parag Parikh Flexicap Fund (PPFAS) crosses ₹1 lakh crore in assets under management (AUM), critics question whether its size could hinder returns—especially due to constraints in small-cap investing. But financial planner Kirtan Shah offers a reassuring rebuttal.

1. AUM Alone Isn’t the Problem: Management Style Matters

Shah emphasizes that it's the AMC-level exposure—not the size of a single scheme—that poses the real risk. Since PPFAS runs fewer equity funds, it avoids overlapping exposures across multiple schemes, which could otherwise concentrate risk unnecessarily.

2. Large‑Cap Focus Reduces Liquidity Risk

Currently, over 50% of PPFAS’s portfolio is in large-cap stocks—52.95%, to be precise. This makes liquidity concerns less acute compared to concentrated small-cap bets. Small-cap exposure remains modest at just 3.77%, and mid-cap at 2.39%.

3. Broadened Stock Count: A Deliberate Choice, Not a Constraint

As AUM grew, the fund expanded its holdings to between 72 and 87 stocks, a change from its earlier, leaner roster. This diversification helps mitigate concentration risk and ensures smoother liquidity management as the fund scales.

4. Performance Remains Solid

Even with its large size, PPFAS continues to outperform benchmark indices on rolling returns—suggesting that its strategic adjustments are effective. Shah underscores that it’s management quality, not AUM per se, that determines results.

5. Systemic vs Scheme-Level Risks

The real systemic red flag, Shah argues, comes from AMCs managing multiple large-cap schemes that may crowd into the same stocks. This overlapping can magnify exposure and reduce agility. PPFAS’s focused model avoids this pitfall.

Taking Stock: What This Means for Investors

Concern	Shah’s Perspective
Large AUM = lower returns?	Not necessarily—if liquidity and risk are managed well.
Fund size affecting small-cap bets?	Yes, but PPFAS keeps small-cap limits modest.
Diversification vs Focus?	More stocks help manage scale without compromising strategy.
Durable performance?	Yes, with consistent outperformance on rolling returns.
AMC-level crowding risk?	Real, but not applicable to PPFAS’s streamlined structure.

Final Word

In a sea of caution around growing fund sizes, Kirtan Shah’s analysis of PPFAS cuts through the noise. He makes clear:

• A large AUM doesn’t doom performance—what matters is how the fund is run.

• PPFAS maintains a liquid, large-cap-focused, and diversified portfolio.

• The fund’s continued benchmark-beating returns speak volumes about its disciplined approach.

• Investors should be more wary of consolidated exposures across multiple schemes, rather than single-scheme giants.

So, is PPFAS still worth considering? According to Shah, yes—if you value strategic scale, prudent risk management, and solid track record, its growth is less a liability and more an evolution.