How Parag Parikh Mutual Fund quietly raised small-cap exposure in its ELSS fund

An X user suggested that the Parag Parikh Mutual Fund should turn its ELSS tax-saver fund into a small- and mid-cap play. As the scheme's fund size is relatively small and comes with a mandatory lock-in period of three years, the fund manager can freely deploy funds into small- and midcap equity instruments with a long-term investment horizon.

"Why not use ELSS tax saver fund as a small and mid cap kind of fund as the fund size is small and suits taking bets with longer horizon as it comes with look in period Eg. SBI children investment plan," the user wrote, tagging Neil and Rajeev Thakkar.

Interestingly, Neil revealed that such a play is already underway.

"Thanks for the suggestion. This is already underway and that's the plan going forward. Please check the factsheet, you will notice this playing out," Parikh said in his reply to the user.

To understand how the Parag Parikh ELSS tax Saver Fund has been quietly increasing its exposure to small- and mid-cap stocks, we analysed the scheme's monthly market-cap allocation since January 2025, when its small-cap allocation fell to a three-year low of 7.82%.

Here are some key findings from the scheme's market-cap allocation data since January 2025:

Data shows that the large-cap allocation has declined marginally from 70.94% in January 2025 to 69.44% in July 2026. However, large-cap stocks continue to form the core of the scheme's portfolio.

The small-cap exposure increased sharply, more than doubling from 7.82% in January 2025 to 18.64% in July 2026, indicating a stronger tilt towards potential high-growth opportunities. The scheme's mid-cap allocation has risen slightly from 2.70% in January 2025 to 3.31% in July 2026, remaining a relatively small part of the scheme's portfolio.

Allocation to 'Others' has reduced significantly from 18.55% to 8.61% during the period, suggesting a shift from cash, debt, arbitrage, or other non-core holdings into equities. The fund's total equity allocation (Large + Mid + Small Cap) increased from 81.45% in January 2025 to 91.39% in July 2026, reflecting a more aggressive equity positioning.

The most notable portfolio change was the reallocation from 'Others' to small-caps, reflecting increased confidence in broader market opportunities while maintaining a strong large-cap base.

As of July 2026, the fund has retained its large-cap-oriented strategy, but with a significantly higher exposure to small-cap stocks compared with January 2025. The shift is expected to enhance the scheme's return prospects. But it may also increase portfolio volatility.

How has the scheme performed?

Despite the rising small-cap share, Parag Parikh ELSS Tax Saver Fund's recent returns are in the red in the short-term. The scheme's direct plan has recorded -5.21% and -.3.25% returns in one year and six months durations respectively, according to ACE MF data as of August 31, 2026. During this period, the scheme's benchmark has delivered +5.31% and +1.87% returns respectively. However, the scheme's long-term returns remain positive at 10.61% in 3 years, 12.15% in 5 years and 17.7% since inception on July 24, 2019.

As of July 31, 2026, the scheme's AUM was ₹5699 crore.