Why PPFAS Does Not Run Sectoral, Thematic, Close-Ended or SIF Schemes

From WebNotes, a public knowledge base. Last updated . Reading time ~21 min.

The decision by PPFAS Mutual Fund not to launch sectoral, thematic, close-ended or Specialised Investment Fund (SIF) schemes, and indeed to abstain from launching index funds, exchange-traded funds, gold funds and international fund-of-funds, is a defining product-design feature of the AMC. As of May 2026 the AMC’s seven active schemes are all open-ended schemes of broad-mandate categories: Parag Parikh Flexi Cap Fund, Parag Parikh Liquid Fund, Parag Parikh ELSS Tax Saver Fund, Parag Parikh Conservative Hybrid Fund, Parag Parikh Arbitrage Fund, Parag Parikh Dynamic Asset Allocation Fund and Parag Parikh Large Cap Fund. None of these is a sectoral, thematic, close-ended, index or ETF scheme, and the AMC has not registered any SIF strategy.

The decision has been articulated since the AMC’s incorporation in 2011 and the launch of Parag Parikh Long Term Value Fund on 24 May 2013, by founder Parag Parikh and successively by Chairman and CEO Neil Parag Parikh, Chief Investment Officer Rajeev Thakkar and Head of Research Raunak Onkar. The stated rationale combines philosophical and economic considerations: sectoral funds concentrate idiosyncratic risk inconsistent with the PPFAS investment philosophy of diversified value investing; thematic funds are subject to category-rotation risk that punishes retail investors who enter at theme-mania peaks; close-ended funds constrain liquidity for retail investors; and Specialised Investment Funds require minimum-investment thresholds of Rs 10 lakh that are inconsistent with the AMC’s retail-investor focus.

The PPFAS approach is materially different from the “category-completion” approach adopted by most large Indian AMCs, including ICICI Prudential AMC, SBI Funds Management, HDFC AMC, Aditya Birla Sun Life AMC and Nippon India AMC, all of which operate sixty-plus open-ended schemes spanning the full SEBI category matrix.

This article is the principal reference on the rationale for the PPFAS product-design discipline. Related references include PPFAS investment philosophy, PPFAS stance on not chasing AUM, PPFAS scheme launch timeline 2013 to 2026 and PPFAS focused portfolio.

Sectoral schemes: idiosyncratic concentration risk

A sectoral mutual fund scheme under the SEBI scheme rationalisation circular 2017 is defined as an equity scheme investing at least 80 per cent of net assets in equity and equity-related instruments of a particular sector, with the sector defined under the AMFI sector classification. Examples of sectoral schemes in the Indian mutual fund industry include banking and financial services funds, pharma and healthcare funds, infrastructure funds, technology funds, FMCG funds, energy funds and PSU funds.

PPFAS has declined to launch any sectoral scheme. The stated rationale is three-fold:

  1. Idiosyncratic concentration risk: A sectoral scheme is structurally exposed to the cyclical, regulatory and idiosyncratic risks of a single sector. The 2008 financial-services drawdown, the 2015-19 pharma generic-pricing pressure, the 2020-21 IT sector run-up and subsequent correction, and the 2018-19 NBFC liquidity crisis are illustrative examples of sectoral schemes producing extreme drawdowns relative to broad-market schemes. The PPFAS investment philosophy of margin of safety and risk-conscious capital allocation is structurally inconsistent with a deliberate concentration in a single sector.

  2. Reduced manager-discretion benefit: The sectoral mandate constrains the fund manager’s ability to rotate out of an over-valued sector and into an under-valued sector, which is at the heart of the PPFAS contrarian investing approach. The structural inflexibility of a sectoral mandate reduces the value-add that the fund manager can deliver relative to a passive sectoral index fund.

  3. Investor-cohort mismatch: Sectoral funds tend to attract speculative-tilted retail flows at sector-peak valuations and bleed AUM during sector troughs, producing pro-cyclical asset-allocation behaviour at the investor cohort level. This is the opposite of the patient long-term cohort that PPFAS seeks to attract.

The argument is consistent with the empirical evidence from Indian mutual fund history. Several sectoral funds launched at the height of the 2000-01 technology cycle, the 2007-08 infrastructure cycle and the 2020-21 IT cycle experienced extreme AUM volatility and underperformed broad-market alternatives over a full cycle.

Thematic schemes: category-rotation and AUM volatility risk

A thematic mutual fund scheme under the SEBI scheme rationalisation framework is an equity scheme investing at least 80 per cent of net assets in equity and equity-related instruments around a particular theme. Themes are broader than sectors and may include consumption, manufacturing, ESG, dividend yield, business-cycle, value, quality, momentum and innovation. Examples include the various consumption funds, manufacturing funds, ESG funds, business-cycle funds and dividend-yield funds launched by Indian AMCs.

PPFAS has also declined to launch any thematic scheme. The stated rationale extends the sectoral-fund critique:

  1. Theme-mania risk: Themes attract retail inflows during the height of the theme’s narrative popularity, often peaking when the theme is most expensively valued. Investors who enter at the peak experience underperformance over the subsequent multi-year reversal. This is structurally inconsistent with the PPFAS behavioural finance approach which emphasises avoiding the cognitive biases that drive theme-mania investing.

  2. Style-rotation risk: Themes such as growth, momentum, value, quality and low-volatility experience multi-year periods of out-performance and under-performance. A style-themed fund manager is constrained from rotating between styles. The PPFAS flagship PPFCF, by contrast, can rotate freely across styles within the constraints of its value-investing process.

  3. Diluted long-term proposition: Each thematic launch dilutes the AMC’s long-term proposition and the unit-holder communication. The PPFAS annual unitholders’ meet and letter from Neil Parikh framework relies on a small set of broad-mandate schemes that can be discussed in depth, rather than a sprawling catalogue that requires per-scheme exposition.

  4. Distributor-led launch incentive: Thematic launches are often driven by distributor-channel demand for “new product” to sell during periods of slow flows in existing schemes. The PPFAS distributor channel history and stance on not chasing AUM eliminate this incentive structure at the AMC level.

Close-ended schemes: retail liquidity constraint

A close-ended mutual fund scheme is a scheme issued at a New Fund Offer for a fixed tenure (typically three to five years), with units listed on a stock exchange for secondary-market exit but with no redemption back to the AMC during the tenure. Close-ended schemes were a major category in Indian mutual funds in the early 2010s but have declined in relative importance following several SEBI interventions and the rise of open-ended alternatives.

PPFAS has not launched any close-ended scheme. The stated rationale is:

  1. Liquidity constraint for retail investors: Close-ended schemes deny retail investors the right to redeem at the prevailing NAV. Investors who need liquidity during the tenure must sell on the stock exchange, where the listed price often trades at a material discount to the underlying NAV (typically 5 to 15 per cent), penalising the redeeming investor.

  2. Inconsistent with the PPFAS investment philosophy: PPFAS emphasises patient, long-term holding by the investor as a matter of choice rather than as a contractual obligation. The PPFCF two-year graduated exit-load schedule (see PPFAS exit-load structure) achieves the long-horizon-investor alignment without imposing the contractual close-ended liquidity constraint.

  3. NFO-pricing risk: Close-ended schemes are launched at a fixed Rs 10 NAV regardless of the prevailing equity-market valuation environment. This produces structural mistiming risk for investors who subscribe to a close-ended NFO at a market peak.

  4. Operational complexity: Close-ended schemes require stock-exchange listing, secondary-market market-making and additional disclosure infrastructure that does not align with the AMC’s deliberately simple operating model.

The PPFAS scheme suite is uniformly open-ended, permitting daily subscription and redemption at the prevailing day-end NAV under the SEBI NAV applicability rule 2021 framework, subject only to the applicable exit-load schedule.

Specialised Investment Funds (SIFs): minimum-investment threshold

The Specialised Investment Fund (SIF) is a new category introduced by SEBI in 2024 to permit registered mutual fund AMCs to launch differentiated strategies that fall between the standard mutual fund framework and the alternative investment fund (AIF) framework. SIFs allow leverage, derivatives, and concentrated portfolio strategies otherwise constrained for standard mutual fund schemes. Crucially, SIFs require a minimum investment of Rs 10 lakh per investor, a threshold designed to limit retail participation to sophisticated high-net-worth investors who can bear the additional complexity and risk.

PPFAS has indicated that it does not intend to launch SIF strategies. The stated rationale is:

  1. Minimum-investment threshold inconsistent with retail focus: The Rs 10 lakh minimum is two orders of magnitude above the Rs 1,000 minimum investment in PPFCF and the other broad-mandate schemes. The PPFAS franchise is built around accessibility to retail investors, including first-time SIP investors and small-ticket monthly investors. An SIF launch would represent a structural departure from this retail-investor focus.

  2. Strategy complexity inconsistent with PPFAS investment philosophy: SIFs are designed to permit leveraged and derivatives-heavy strategies. The PPFAS investment philosophy, articulated in the founder’s 2009 book “Value Investing and Behavioral Finance” and continued by the present management team, explicitly avoids directional derivatives (see PPFAS derivatives stance) and leverage. The structural strategy permissions of an SIF are inconsistent with the PPFAS approach.

  3. HNI segment competition: The HNI investor segment is dominated by Portfolio Management Services and Alternative Investment Funds (AIFs), where competitive intensity is high and the PPFAS franchise does not have a structural advantage. PPFAS Ltd already operates the Cognito PMS, which is closed to new clients, and there is no indication of a re-opening or of a parallel SIF launch.

The position is consistent with statements made at the 12th annual unitholders’ meet on 22 November 2025 and in the AMC’s investor communications throughout 2025 and 2026.

Index funds, ETFs, gold funds and international fund-of-funds

PPFAS has also abstained from launching:

  • Index funds: Open-ended schemes tracking a benchmark index (Nifty 50, Nifty 500, Nifty Bank) with passive replication. The rationale is that PPFAS’s value-add is in active discretionary stock selection rather than passive replication. The market for low-cost index funds is dominated by HDFC Mutual Fund, ICICI Prudential Mutual Fund, SBI Mutual Fund, UTI Mutual Fund and Navi Mutual Fund, where competitive pricing has compressed Direct Plan TERs to 0.05 to 0.15 per cent. PPFAS would have no structural cost advantage in this segment.

  • Exchange-traded funds (ETFs): Stock-exchange-listed index funds. Similar rationale to index funds, with the additional operational complexity of market-making, authorised participant arrangements and creation-redemption baskets.

  • Gold funds and gold ETFs: Schemes investing in gold or gold-related instruments. The rationale is that gold is a commodity-allocation choice better made by the investor directly through Sovereign Gold Bonds, Gold ETFs of other AMCs or physical gold.

  • International fund-of-funds (FoFs): Schemes investing in foreign mutual fund schemes (typically US-listed ETFs). PPFAS achieves international diversification at the underlying scheme level through PPFCF’s up-to-35-per-cent overseas allocation, eliminating the need for a separate FoF wrapper. The SEBI MF overseas investment cap episode in February 2022 illustrated the regulatory risk of FoF structures that are 100 per cent dependent on the overseas allocation cap.

The absence of these categories from the PPFAS scheme suite is a deliberate design choice rather than a regulatory or operational limitation.

Comparison with category-completion-oriented peers

The PPFAS approach can be usefully contrasted with the “category-completion” approach adopted by most large Indian AMCs:

  • ICICI Prudential AMC: Operates approximately 80 open-ended schemes across the full SEBI category matrix, including sectoral funds (Banking and Financial Services Fund, Pharma Healthcare and Diagnostics Fund, Technology Fund), thematic funds (Bharat Consumption Fund, ESG Exclusionary Strategy Fund, Innovation Fund) and a full ETF and index fund catalogue.
  • SBI Funds Management: Operates a similarly broad scheme suite including SBI Banking and Financial Services Fund, SBI Healthcare Opportunities Fund, SBI Magnum COMMA Fund (commodities theme), SBI Consumption Opportunities Fund and a wide ETF range.
  • Aditya Birla Sun Life AMC: Operates schemes including the Aditya Birla Sun Life Banking and Financial Services Fund, Pharma and Healthcare Fund, Digital India Fund and PSU Equity Fund.
  • Nippon India AMC: Operates Nippon India Pharma Fund, Banking and Financial Services Fund, Power and Infra Fund and Consumption Fund.
  • HDFC AMC: Operates HDFC Banking and Financial Services Fund, HDFC Infrastructure Fund and HDFC Defence Fund among other thematic schemes.

By contrast, the more conservative AMCs such as Quantum Mutual Fund (with a deliberately small thirteen-scheme catalogue and no sectoral or thematic schemes) and PPFAS have abstained from category-completion approaches.

The contrast reflects different strategic priorities. Category-completion-oriented AMCs are typically owned by listed financial-services conglomerates or banks where AUM growth is a primary metric and product-launch cadence supports distributor and bank-channel sales. PPFAS, with family-controlled ownership and an AUM-discipline stance, is structurally insulated from these incentives.

Trade-offs of the PPFAS approach

The PPFAS approach is not cost-free. The principal trade-offs are:

  1. Smaller addressable market: By abstaining from the sectoral, thematic, index, ETF, gold and international FoF segments, the AMC concedes the corresponding investor cohort to peers. The total Indian mutual fund AUM in these segments is approximately Rs 6 to 8 lakh crore as of 2026, of which PPFAS captures none.

  2. Less reach into B-30 and bank-channel cohorts: Category-completion AMCs use the breadth of their catalogue to build deeper relationships with bank-channel distributors and to capture B-30 retail flows. PPFAS’s narrow catalogue offers less surface area for distributor cross-sell.

  3. Reduced ability to time category cycles: An AMC with a sectoral and thematic catalogue can launch a category-specific scheme to capture investor interest during a category-cycle peak. PPFAS’s broad-mandate-only catalogue forecloses this possibility, although the PPFCF cash-holding flexibility provides an alternative valuation-aware mechanism.

The AMC has consistently signalled that these trade-offs are acceptable in exchange for the focus and the alignment with the PPFAS investment philosophy.

Recent developments

The launch of Parag Parikh Large Cap Fund on 4 February 2026 was the first PPFAS scheme launch in the SEBI Large Cap category, and it might be read as a modest move toward category-completion. However, the Large Cap category is a broad-mandate category covering the top 100 listed Indian companies by market capitalisation, not a sectoral or thematic category. The AMC continues to abstain from sectoral, thematic, close-ended, SIF, index, ETF, gold and international FoF schemes.

At the 12th annual unitholders’ meet on 22 November 2025, Neil Parikh and Rajeev Thakkar restated the AMC’s position on product-design discipline and indicated no plans to launch sectoral, thematic, close-ended or SIF schemes.

See also

External references

References

  1. PPFAS AMC. “Schemes hub.” amc.ppfas.com.
  2. PPFAS Ltd. “Our Philosophy.” ppfas.com.
  3. SEBI. “Categorisation and Rationalisation of Mutual Fund Schemes.” Circular October 2017.
  4. SEBI. “Specialised Investment Fund (SIF) Framework.” Circular 2024.
  5. PPFAS AMC. “Letter from Neil Parikh: Annual Letters.” amc.ppfas.com.
  6. PPFAS AMC. “Annual Unitholders’ Meet recordings, 2014 to 2025.” youtube.com/user/ppfasltd.
  7. Parag Parikh. “Value Investing and Behavioral Finance.” Tata McGraw-Hill, 2009.
  8. AMFI. “Mutual Fund Industry Composition.” amfiindia.com.
  9. SEBI. “Mutual Funds Regulations, 1996.” sebi.gov.in.
  10. ICICI Prudential AMC, SBI Funds Management, HDFC AMC, Aditya Birla Sun Life AMC. Public scheme catalogues 2026.

Reviewed and published by

WebNotes Editorial Team

The WebNotes Editorial Team covers Indian capital markets, payments infrastructure and retail investor procedures. Every article is fact-checked against primary sources, principally SEBI circulars and master directions, NPCI specifications and the official support documentation published by the intermediary in question. Drafts go through a second-pair-of-eyes review and a separate compliance read before publication, and revisions are tracked against the SEBI and NPCI rule changes referenced in the methodology section.

Last reviewed
Conflicts of interest
WebNotes is independent. No relationship with any broker, registrar or bank named in this article.