Motilal Oswal AMC launches 4 index funds; Which one to choose?

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Published: August 19, 2019 1:02:03 PM

All discussions on index funds and passives start and end with long debates on alpha while digital DIY trends demand simplicity.

Mutual funds, MF, Motilal Oswal AMC, index funds,re-categorisation exercise, SEBI, TRI, fund manager, NFO, Bank Index Fund, Nifty 500 Index Fund,Nifty Small-cap 250 Index FundIndex funds are better suited to investor needs to provide building blocks for better asset allocation.

Motilal Oswal Asset Management Company (MOAMC) has launched 4 index funds, the NFO of which will open from August 19 and closes on August 30, 2019. The four index funds are – Motilal Oswal Midcap 150 Index Fund, Motilal Oswal Nifty 500 Index Fund, Motilal Oswal Nifty Bank Index Fund and Motilal Oswal Nifty Small-cap 250 Index Fund. Important to note is that the role of the fund manager is non-existent in index funds. When it comes to fund management, the index funds follow a passive approach as against an active approach. Essentially, the aim of the index fund is to replicate the index to which it is benchmarking in terms of allocation and weightage of stocks.

These mutual fund schemes will be available across all the platforms including MOAMC and Paytm Money. “All discussions on index funds and passives start and end with long debates on alpha – while that is a criteria for experienced investors we need to think a lot more about new entrants – digital DIY trends demand simplicity and regulatory trends demand cheaper products enabling easy fund selection for building blocks, asset allocation and financial planning,” says Aashish Somaiyaa, MD & CEO, MOAMC.

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Here are the basic features of the four NFOs:

1. Motilal Oswal Nifty 500 Index Fund – The underlying index of this scheme will be Nifty 500 Index and will be India’s first Nifty 500 fund. With a bigger population of stocks under its radar, the fund will remain a diversified index fund. Primarily, it will invest in large-caps and a little over 20 per cent of the portfolio will be invested in mid-cap and small-cap companies.

2. Motilal Oswal Nifty Midcap 150 Index Fund – The underlying index of this scheme will be Nifty Midcap 150 Index and will be India’s first Midcap 150 Index fund.

3. Motilal Oswal Nifty Bank Index Fund – The underlying index of this scheme will be Nifty Bank Index and will be India’s first Nifty Bank Index fund.

4. Motilal Oswal Nifty Smallcap 250 Index Fund – The underlying index of this scheme will be Nifty Smallcap 250 Index and will be India’s first Nifty Smallcap 250 Index fund. The index represents the companies ranked 251-500 from the NIFTY 500 Index.

Why index funds

Post the re-categorisation exercise initiated by SEBI and the rule to benchmark MF returns against total return index (TRI), the role and impact of index funds have come to the forefront. Beating the index TRI consistently over the long term is seen increasingly difficult by the fund managers. Index funds eliminate the fund manager risk and therefore the risk of underperforming the benchmark especially over the long term. With no fund manager’s role, the index funds generally track broad-based indices which reduces the impact of any decline in the value of any one stock or industry. Importantly, the expense ratio i.e. costs are low in index funds as they are passively managed. “Index funds are better suited to investor needs and are launching multiple NFO’s to provide building blocks for better asset allocation,” says Pratik Oswal, Head of passive funds, MOAMC.

Who should invest

Based on one’s risk profile, one may choose to invest in any of these four funds. Remember, each investment in any of these MF schemes needs to be linked to your long term goal. Even though these are index funds that do not necessarily remove the risks attached to equities or the nature of market-cap of stocks. Mid-small cap funds could be more volatile and may require more time to generate adequate returns. Even non-index funds have a role to play in one’s portfolio and selecting the right scheme is equally important for active funds. For the further plan of action, it is better to get in touch with your financial advisor before investing.

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