Motilal Oswal Nasdaq 100 Fund Of Fund: Worthy To Diversify Your Portfolio?
Nov 19, 2018

Author: PersonalFN Content & Research Team

Motilal Oswal Mutual Fund has launched another passively managed fund, but this time it is in the form of Fund of Funds.

Motilal Oswal Nasdaq 100 Fund of Fund (MOFN100FOF) is the latest offering from the fund house, where the scheme will invest in units of its open-ended ETF – Motilal Oswal Nasdaq 100 ETF, that passively tracks and invests in stocks constituting the Nasdaq 100 index.

As you may be aware, a passively managed fund mirrors the performance of its benchmark index and does not require active management.  The manager of such a fund buy only the stocks of the underlying index and exits a certain stock only when the respective stock exits from the index and is replaced by another one.

About Motilal Oswal Nasdaq 100 Fund of Fund

The MOFN100FOF is a type of fund of fund, wherein the scheme is mandated to invest a minimum 95% of its total assets in the units of underlying scheme (Motilal Oswal Nasdaq 100 ETF).

It is noteworthy that Motilal Oswal Nasdaq 100 ETF (MOFN100), is a fund that aligned to the world's second largest benchmark index NASDAQ 100 Index. This equity index contains stocks of top 100 U.S. companies (excluding non-financial securities) listed on the NASDAQ stock exchange in the United States.

Being an offshore dominated fund, it contains the risk of investing in foreign securities i.e. exposure of dynamic exchange rate fluctuations and country risks.

[Read: Why Comparing Returns to Risk Is More Meaningful!]

Table 1: NFO Details
 
Type An open-ended fund of fund scheme investing in Motilal Oswal Nasdaq 100 ETF. Category Domestic FOF
Investment Objective The investment objective of the Scheme is to seek returns by investing in units of Motilal Oswal Nasdaq 100 ETF.

However, there can be no assurance or guarantee that the investment objective of the Scheme would be achieved
Min.Investment Rs 500 and in multiples of Re 1 thereafter Face Value Rs 10 per unit
Plans  • Direct
• Regular
Options • Growth
Entry Load Nil Exit Load Nil
Fund Manager Mr Ashish Agrawal (Equity) and Mr Abhiroop Mukherjee (Debt) Benchmark Index NASDAQ-100 Index
Issue Opens November 9, 2018 Issue Closes: November 22, 2018
(Source: Scheme Information Document)
 

How will the scheme allocate its assets?

Under normal circumstances, it is anticipated that the asset allocation of MOFN100FOF will be as follows:

Table 2: MOFN100FOF's Asset Allocation

 
Instruments
Indicative allocations
(% of Total Assets)
Risk Profile
Minimum Maximum
Units of Motilal Oswal Nasdaq 100 ETF 95 100 High
Units of liquid/ debt schemes, Debt, Money Market Instruments, G-Secs, Cash and Cash at call, etc. 5 0 Low to Medium
(Source: Scheme Information Document)

What will be the Investment Strategy?

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(Image source: freepik.com)

MOFN100FOF will follow a passive investment strategy to achieve the given objective of the scheme that is to seek returns by investing in units of Motilal Oswal Nasdaq 100 ETF.

While making investments the AMC will not perform any economic, financial or market analysis as the underlying scheme reflects NASDAQ-100 Index and so the AMC may not make any judgments about the investment merit of it. Except to meet its liquidity requirements, the scheme would also invest in units of Liquid/ debt schemes, debt and money market instruments as specified in the asset allocation table.

A quick glance on NASDAQ 100 index:

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(Source: Motilal Oswal Nasdaq 100 Fund Of Fund Presentation)

The Nasdaq 100 Index is a basket of 100 largest, most actively traded U.S. companies listed on the Nasdaq stock exchange. The index includes companies from various industries except for the financial services industry, like commercial and investment banks.

As disclosed by the fund house in its presentation, NASDAQ 100 index is skewed more towards the IT- sector and comprises of global business leaders like Apple, Microsoft, Google, Facebook. Over the years technology stocks have evolved to create new and niche consumer products to a host of companies upon which every industry and sector depends.

Who will manage MOFN100FOF?

The Motilal Oswal Nasdaq 100 Fund of Fund will be managed by Mr Ashish Agrawal (Exchange Traded Funds) and Mr Abhiroop Mukherjee (Debt Component).

Mr Ashish Agrawal is the Vice President Dealing and Fund Manager in Motilal Oswal Asset Management Co. Ltd.  He is a Commerce Graduate with a Post Graduate program in Management to his credit. Mr Agrawal has around 13 years of experience in institutional equities business. Prior to joining Motilal Oswal Asset Management Co. Ltd, he worked at RBS Securities India Limited - as Associate Director, Sales for a brief period and at Citigroup Global Markets - as Vice President, Sales Trading for 6 years. Mr Agrawal is one of the lead fund managers at the AMC. Other schemes that he manages include Motilal Oswal M50 ETF and Motilal Oswal Midcap 100 ETF

Mr Abhiroop Mukherjee is the Associate Vice President - Fixed Income at Motilal Oswal Asset Management Company Ltd. He has a BCom(Honours) and PGDM  in Finance to his credit. He has over 10 years of experience in the Fixed Income Securities trading and fund management. Prior to joining the fund house, he worked as an Assistant Vice President of Fixed Income at PNB Gilts Ltd for 5 years

Currently, Mr Mukherjee manages the debt component at the fund house that includes: Motilal Oswal Ultra Short -Term Fund, Motilal Oswal Midcap 30 Fund, Motilal Oswal Multicap 35 Fund Motilal Oswal Long-Term Equity Fund and Motilal Oswal Dynamic Fund

The outlook for Motilal Oswal Nasdaq 100 Fund of Fund:

The aim of Motilal Oswal Nasdaq 100 fund of fund is to capture potential returns of the underlying NASDAQ 100 ETF for over a longer horizon.

The fund house believes that the US market has been in a long-drawn bull run since the first launch of NASDAQ 100 ETF and further appreciation of US dollar has fed into the fund's past returns.

Table 3: Performance history of Motilal Oswal Nasdaq 100 ETF

  Absolute Returns (%)   CAGR (%)
Scheme Name 6 Months 1 Year 2 Years 3 Years 5 Years Since Inception
Category: ETFs - Other
Motilal Oswal Nasdaq 100 ETF 5.21 20.35 22.85 17.75 17.53 22.40
Category: Benchmark
Nasdaq-100 -0.91 8.33 19.71 14.56 14.93 15.22
NIFTY 50 - TRI 0.43 6.02 16.27 12.48 13.40 9.87
(Performance as on 16-Nov-2018; Source: ACEMF)

As seen above the underlying Motilal Oswal Nasdaq 100 ETF has managed to provide returns better than the benchmark Nasdaq 100 index as well as the Nifty 50 TRI index.

It is noteworthy that these returns are in rupee terms and the huge depreciation in the value of INR against the USD has resulted in additional alpha over the benchmark Nasdaq 100 index. Undoubtedly, Nasdaq 100 has delivered returns better than Nifty 50 - TRI (benchmark for the performance of Indian equity markets).

It is important to understand that both the markets have their own pros and cons. Therefore, whether to sign up for this fund or avoid will depend on your preference, suitability and risk appetite as an investor.

PersonalFN believes that one should preferably invest in the market they understand well. Offshore funds are not everyone's cup of tea. It can be at the best be considered for diversification, only after you have fulfilled your domestic commitment. Still it is important to understand the underlying risk related to offshore investing i.e. the risk of investing in foreign securities that carry an exchange rate risks related to depreciation of foreign currency, geo-political risk and country specific risks.

From taxation point of view, offshore funds as well Fund-of-Funds qualify under non-equity tax status. Therefore, investors in this fund will not be getting the favourable tax status enjoyed by equities and equity mutual funds.

Another point to keep in mind is that the expense of the fund will be slightly higher compared to the underlying Motilal Oswal Nasdaq 100 ETF. Motilal Oswal Nasdaq 100 Fund of Fund however offers an opportunity to investors who would prefer enjoying the benefit of the fund through the SIP mode, instead of buying units of the Motilal Oswal Nasdaq 100 ETF directly from the exchange. But you need to keep in mind your preferences before signing up for the fund.

[Read: Skip NFOs, Instead Consider Building A Strategic Mutual Fund Portfolio]

PS: If you want to add SOLID mutual funds to your portfolio, try PersonalFN's unbiased premium research service—FundSelect is meant to assist investors in selecting worthy mutual fund schemes.

 

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