Motilal Oswal index funds NFO - should you invest
TLDR: 4 new index funds offered by Motilal Oswal - Should you invest?
Motilal Oswal has announced 4 new index funds in the Indian market. They have also committed to keeping the costs low, expense ratios expected to be below 0.5% TER. The funds are a welcome addition to the Indian market, but the question is should you invest in them?
NIFTY 500 and its constituents
It is important to understand what the key indexes are before we begin this deep dive. Let us review them here.
Note: The NFO are closed now, these index funds can only be purchased now once they are available to the public.
Motilal Oswal NIFTY Bank index fund
The fund tracks the NIFTY Bank index which tracks the 12 largest listed banks in India.
Mostly private sector banks with a few bigger public sector banks thrown in
The banking and finance sector is the backbone of every booming economy and the credit growth and expansion is driven by the banks. This is also clear from their performance compared to other indexes.
But having said that,
I am personally not a fan of sectorial funds (with an exception of FMCG).
Banks generally are hit hard during a recession and they also suffer from higher volatility compared to other industries.
Given this index only tracks 12 banks underlying, this by itself doesn’t provide a lot of diversification as well.
So personally I am going to give this one a pass.
Motilal Oswal Small cap 250 index
This index fund the NIFTY small cap 250 index which tracks the last 250 companies in the NIFTY 500 index.
I am going to give this a pass as well because
For the level of volatility of the index, the returns aren’t that impressive
Liquidity issues in maintaining this index which could lead to greater tracking errors and reduced performance
Compared to NIFTY 50, the 10 year returns is nothing to write home about
Motilal Oswal NIFTY 500 index
This fund tracks the 500 largest publicly listed companies in India via the NIFTY 500 index, the equivalent of S&P 500 for the Indian market.
This fund gives you exposure to essentially the entire Indian market, (at least the part which has liquidity and outside of penny stocks). The issues that I feel that exist for the small cap fund exists for this fund as well
Liquidity of the bottom 250 stocks
Tracking errors same as above
Performance is very similar to NIFTY 50 over 10 years
I am going to give this a pass as well for now until there is more liquidity and more active market participation in these funds.
Motilal Oswal Mid cap 150 index
This fund tracks the NIFTY mid cap 150 index. This fund tracks the largest 150 companies outside of the NIFTY 100.
This fund has my interest. I have previously lamented the need for a proper mid cap index fund several times in this blog. This index fund seems to be the perfect answer to my prayers provided they have good liquidity and keep the expenses low. I have not invested in the NFO as of now. But will consider investing in this index once it is available to the public.
Conclusion
As always, this is not a recommendation. I just wanted to share my thoughts about these index fund offerings. Please do your own research before investing as everyone has different investment goals, horizons and objectives.
For a lazy portfolio for the Indian market. These 3 funds would be my go to options
UTI NIFTY index fund
UTI NIFTY Jr index fund
Motilal Oswal Mid cap 150 index fund
Covers top 250 companies in India. Probably time to update my Indian lazy market portfolio recommendation for set it and forget it setup.
Happy Investing.
