Motilal Oswal Nifty Microcap 250 Index Fund NFO: Motilal Oswal Asset Management Company (MOAMC) has launched Motilal Oswal Nifty Microcap 250 Index Fund. In a statement today, the AMC said this is  India’s only passive fund offering exposure to microcap stocks. 

The fund will aim to provide investors with an opportunity to participate in the growth potential of microcap stocks. Motilal Oswal Nifty Microcap 250 Index Fund is an open-ended fund replicating/tracking the total returns of Nifty Microcap 250 Index. 

NFO dates

The  New Fund Offer period for Motilal Oswal Nifty Microcap 250 Index Fund commenced today (June 15) and will close on 29th June 2023. 

What is Nifty Microcap 250 Index?

The Nifty Microcap 250 Index is designed to measure the performance of the top 250 companies excluding those already present in the Nifty 500 constituents. It is a well-diversified index, with its top 10 holdings accounting for only 11%  as against 59% in the Nifty 50 Index. Further, this index provides diversified exposure to sectors like Industrials, Consumer  Discretionary, Commodities, and Healthcare which are usually underweight in broad-based market indices. 

According to the statement, Nifty Microcap 250 Index has delivered 58% returns on an annualized basis in three years. 

However, while microcaps exhibit strong performance potential, it may also experience higher volatility and extended periods of underperformance to broad-based market indices, the AMC said. 

Why microcaps? 

The AMC said that microcap companies, which comprise approximately 3% of the total market capitalization of listed stocks, pose distinct characteristics that make them intriguing investment prospects. These companies are known for their agility,  niche market focus, and strong promotor-driven dynamics. 

Microcaps often fly under the radar of research analysts, with more than 40% of companies receiving no analyst coverage at all and only 12% of the stocks have more than 5 analyst coverage. In fact, less than 4% of mutual fund industry’s AUM is invested beyond top 500 companies. This creates a higher likelihood of finding hidden opportunities, the AMC said.   

The AMC further said that various studies have indicated that small companies tend to outperform their larger counterparts, due to factors like illiquidity premium, small company risk premium etc. This makes investing in microcaps an attractive investment proposition. 

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“Our latest Microcap based index fund offering will further expand our wide range of passive funds. By launching the Motilal Oswal Nifty Microcap 250 Index Fund, we offer investors a natural extension of the  Motilal Oswal Nifty 500 Index Fund, complementing our existing range of broad-based index funds,” said Navin Agarwal, MD & CEO, Motilal Oswal Asset Management Company Ltd said.  

“With the Motilal Oswal  Nifty Microcap 250 Index Fund, we lead the charge in unlocking the untapped potential and opportunities of this distinctive investment category. We believe that the segment holds immense potential and unique investment opportunities that have been overlooked by many in the industry,” said Pratik Oswal, Head of Passive Funds, Motilal Oswal Asset Management Company Ltd. 

“Microcaps have compelling track record of delivering higher returns compared to  its counterparts, albeit at a higher risk. Investors are encouraged to consult their financial advisors, a prudent  allocation of 5-10% to this fund may help enhance overall portfolio returns,” he added. 

No guarantee

As per the statement, the investment objective of the scheme is to provide returns that, before expenses, correspond to the total returns of the securities as represented by Nifty Microcap 250 Index, subject to tracking error. However, there is no guarantee or assurance that the investment objective of the scheme will be achieved. 

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Expense Ratio

The Indicative Base Total  Expense Ratio of the fund: Regular – 1.00%, Direct – 0.40%. 

Application Amount

The minimum application amount for Motilal Oswal Nifty Microcap 250 Index Fund is Rs. 500 and in multiples of  Re. 1 thereafter. On an ongoing basis, investors can purchase/redeem units of the scheme through financial advisors or through the AMC’s website.

Disclaimer: The above content is based on a press release by Motilal Oswal AMC. Mutual Fund investments are subject to market risks. Please consult your financial advisor before investing.