Motilal Oswal Asset Management Company Ltd. (MOAMC) is a public limited company incorporated under the Companies Act, 1956 on November 14, 2008, having its Registered Office at 10th Floor, Motilal Oswal Tower, Rahimtullah Sayani Road, Opposite Parel ST Depot, Prabhadevi, Mumbai - 400025.
Motilal Oswal Asset Management Company Ltd. has been appointed as the Investment Manager to Motilal Oswal Mutual Fund by the Trustee vide Investment Management Agreement (IMA) dated May 21, 2009, executed between Motilal Oswal Trustee Company Ltd. and Motilal Oswal Asset Management Company Ltd.
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Motilal Oswal Asset Allocation Passive Fund of Fund – Aggressive (G) - 11.3846Motilal Oswal Asset Allocation Passive Fund of Fund – Aggressive-Dir (G) - 11.4181Motilal Oswal Asset Allocation Passive Fund of Fund – Conservative (G) - 10.9654Motilal Oswal Asset Allocation Passive Fund of Fund – Conservative-Dir(G) - 11.0015Motilal Oswal Dynamic Fund (Div-A) - 14.1399Motilal Oswal Dynamic Fund (Div-Q) - 12.664Motilal Oswal Dynamic Fund (G) - 15.6026Motilal Oswal Dynamic Fund-Dir (Div-A) - 14.3632Motilal Oswal Dynamic Fund-Dir (Div-Q) - 12.8792Motilal Oswal Dynamic Fund-Dir (G) - 16.5268Motilal Oswal Equity Hybrid Fund - Direct (G) - 16.4362Motilal Oswal Equity Hybrid Fund - Regular (G) - 15.6555Motilal Oswal Flexi Cap Fund(D) - 27.2528Motilal Oswal Flexi Cap Fund(G) - 36.2551Motilal Oswal Flexi Cap Fund-Dir(D) - 27.3405Motilal Oswal Flexi Cap Fund-Dir(G) - 38.8868Motilal Oswal Focused 25 Fund - Direct (D) - 22.5111Motilal Oswal Focused 25 Fund - Direct (G) - 38.4537Motilal Oswal Focused 25 Fund (D) - 20.1781Motilal Oswal Focused 25 Fund (G) - 34.3801Motilal Oswal Large and Midcap Fund - Dir (D) - 17.3261Motilal Oswal Large and Midcap Fund - Dir (G) - 17.3408Motilal Oswal Large and Midcap Fund (D) - 16.7609Motilal Oswal Large and Midcap Fund (G) - 16.761Motilal Oswal Liquid Fund - Direct (Div-D) RI - 10.0077Motilal Oswal Liquid Fund - Direct (Div-F) RI - 10.0043Motilal Oswal Liquid Fund - Direct (Div-M) - 10.03Motilal Oswal Liquid Fund - Direct (Div-Q) - 10.0034Motilal Oswal Liquid Fund - Direct (Div-W) RI - 10.0058Motilal Oswal Liquid Fund - Direct (G) - 11.2006Motilal Oswal Liquid Fund - Regular (Div-D) RI - 10.0055Motilal Oswal Liquid Fund - Regular (Div-F) RI - 10.0042Motilal Oswal Liquid Fund - Regular (Div-M) - 10.03Motilal Oswal Liquid Fund - Regular (Div-Q) - 10.0034Motilal Oswal Liquid Fund - Regular (Div-W) RI - 10.013Motilal Oswal Liquid Fund - Regular (G) - 11.1541Motilal Oswal Long Term Equity Fund (D) - 21.5046Motilal Oswal Long Term Equity Fund (G) - 27.3747Motilal Oswal Long Term Equity Fund -Dir (D) - 25.6699Motilal Oswal Long Term Equity Fund -Dir (G) - 29.9503Motilal Oswal Midcap 30 Fund (D) - 25.6227Motilal Oswal Midcap 30 Fund (G) - 41.9429Motilal Oswal Midcap 30 Fund-Dir (D) - 26.5417Motilal Oswal Midcap 30 Fund-Dir (G) - 46.083Motilal Oswal Multi Asset Fund - Direct (G) - 10.944Motilal Oswal Multi Asset Fund (G) - 10.7567Motilal Oswal Nasdaq 100 FOF - Direct (G) - 23.6638Motilal Oswal Nasdaq 100 FOF - Regular (G) - 23.398Motilal Oswal Nifty 50 Index Fund - Direct (G) - 14.8351Motilal Oswal Nifty 50 Index Fund (G) - 14.726Motilal Oswal Nifty 500 Fund - Direct (G) - 17.1524Motilal Oswal Nifty 500 Fund (G) - 16.925Motilal Oswal Nifty Bank Index Fund - Direct (G) - 13.701Motilal Oswal Nifty Bank Index Fund (G) - 13.5202Motilal Oswal Nifty Midcap 150 Index Fund (G) - 19.7725Motilal Oswal Nifty Midcap 150 Index Fund-Dir (G) - 20.0505Motilal Oswal Nifty Next 50 Index Fund - Dir (G) - 15.0847Motilal Oswal Nifty Next 50 Index Fund (G) - 14.9091Motilal Oswal Nifty Smallcap 250 Index Fund (G) - 20.4288Motilal Oswal Nifty Smallcap 250 Index Fund-Dir(G) - 20.7098Motilal Oswal S&P 500 Index Fund - Direct (G) - 14.865Motilal Oswal S&P 500 Index Fund (G) - 14.7245Motilal Oswal Ultra Short Term Fund - Dir (Div-D) - 10.0029Motilal Oswal Ultra Short Term Fund - Dir (Div-F) - 10.0263Motilal Oswal Ultra Short Term Fund - Dir (Div-M) - 10.0099Motilal Oswal Ultra Short Term Fund - Dir (Div-Q) - 10.1541Motilal Oswal Ultra Short Term Fund - Dir (Div-W) - 10.014Motilal Oswal Ultra Short Term Fund - Dir (G) - 14.173Motilal Oswal Ultra Short Term Fund (Div-D) - 9.9475Motilal Oswal Ultra Short Term Fund (Div-F) - 9.9582Motilal Oswal Ultra Short Term Fund (Div-M) - 9.948Motilal Oswal Ultra Short Term Fund (Div-Q) - 10.0925Motilal Oswal Ultra Short Term Fund (Div-W) - 9.951Motilal Oswal Ultra Short Term Fund (G) - 13.7006

Benefit from the Default Effect: Make Equity Linked Saving Scheme your stepping stone to long-term investments in Equity

Blog Blog Details
  • January 07, 2021
  • Umang Thaker|
  • Head of Products
Benefit from the Default Effect: Make Equity Linked Saving Scheme your stepping stone to long-term investments in Equity

Investors wanting to achieve the basic arithmetic combination of saving taxes and building wealth – both at one go - can consider investing in Equity linked Saving Schemes (ELSS).A lot is already written about the twin virtues of tax benefits and equity investments, but one attractive feature that is rarely talked about is the default ‘lock-in’ feature.

Understanding ‘The Default Effect’:

“To do nothing is within the power of all men”, said Samuel Johnson.

The default effect is the phenomenon where making an option the default among a set of choices increases the likelihood of it being chosen.

Defaults in our daily life have evolved consistently – voice commands have replaced typing, thumb impression has replaced keys and in the near future, driverless cars are likely to replace drivers. From Pre-filled web pages to the size of coffee cups, from ‘Web apps’ with standard settings to public policy, the ‘default’ option has surely proven its utility. 

One would wonder – why is ‘default setting’ the most preferred option. Reason: it saves the user from the trouble of decision making. 

The key culprit is ‘Effort’. Because choosing something that is not default requires effort. The amount of effort required may be different – and only if the perceived reward of effort is greater than the input, will a user be willing to invest time in making changes. 

The Power of good Defaults 

Today, Default Effect 1 and Nudge Theory 2 are widely used as effective tools in administering public policy. The US administration uses principles of Nudge for encouraging long term savings in their pension policy. Making enrolments a default option, ensures a higher rate of participation and hence higher retirement savings. 

Austria and Sweden presume consent for ‘Organ Donation’ making it a default. People who do not wish to donate their organs have to fill an Opt-out form – thereby increasing ‘effort’ for not pledging their organs. It is no surprise that both these countries have 99% and 86% organ donation rates respectively as opposed to 12% in Germany and 17% in the United Kingdom.

For equity instruments a reasonably long term lock-in may well serve as a useful default.

‘Lock-in’ prevent impulsive mistakes

Volatility in the stock markets affect investor’s minds. These behavioural hindrances to wealth creation can be dealt with if investors keep their emotions in check during market crashes. Investments in tax-saving schemes have lock-in period of three years. This can prevent reactions caused by the fear induced through sharp corrections. 

2020 is a good case in point – the sharp correction led to a ~25,000 cr redemption in Equity mutual funds in March’20. Markets saw a V-shaped recovery from the bottom – Nifty 50 bottomed out wiping out 35% from the index and climbed back to scale all-time highs in December’20. The Default choice of 3 yr lock-in would have saved many-a-investor from the need to react.

An equally opposite behaviour of throwing caution to wind is seen during euphoric bull-runs. 

As they say, the most difficult thing in investing is ‘doing nothing’. 

Two valid critiques of ‘lock-in’ are 1) liquidity and 2) Is 3 years is good enough time horizon. 

1)Liquidity: Listed below are the tax saving options that have a higher lock-in period compared to Equity Linked Saving Schemes.

Investment/Saving Instrument

Mandatory Lock-in Period

National Pension Scheme

Till Retirement

PPF

15 Years

Unit Linked Insurance Plans

5 Years

National Saving Certificate

5 Years

Senior Citizen Saving Scheme

5 Years

Bank FD s

5 Years

 
If liquidity were of paramount importance to investors, then these tax saving options would have got far lesser allocations. We know for a fact that all the above mentioned options, barring NPS, have a far larger corpus compared to ELSS. 

2)Is 3 years good enough: The best way to judge this would be to examine 3 year rolling returns for all ELSS funds since the inception of this category (1996).The average 3 year rolling return (calculated on a daily rolling basis) for all ELSS schemes is 14.85%. 

Also, there is no need to exit after completing three years. If you stick to your investments in ELSS and keep adding more to it each year, you are likely to make higher returns in the long-term. 

In the bestseller ‘Sapiens — A Brief History of Humankind’, Yoval Noah Harari explains how gossip helped us rule the world. Well, I believe, the lock-in benefit in ELSS, would be one thing worth gossiping about.

Umang Thaker – Head-Products, Motilal Oswal Asset Management Company Limited.

1.When and why defaults influence decisions: a meta-analysis of default effects : JON M. JACHIMOWICZ* Columbia Business School, New York, NY, USA,  SHANNON DUNCAN Columbia Business School, New York, NY, USA; ELKE U. WEBER Princeton University, Princeton, NJ, USA and ERIC J . JOHNSON Columbia Business School, New York, NY, USA.
2.Nudge: Improving Decisions About Health, Wealth, and Happiness – Richard H Thaler and Cass R Sunstien.

This article has been issued on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this document is for general purposes only and not a complete disclosure of every material fact. The Stocks mentioned herein is for explaining the concept and shall not be construed as an investment advice to any party. The information / data herein alone is not sufficient and shouldn’t be used for the development or implementation of an investment strategy. It should not be construed as investment advice to any party. All opinions, figures, estimates and data included in this article are as on date. The article does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. The statements contained herein may include statements of future expectations and other forward-looking statements that are based on our current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Readers shall be fully responsible/liable for any decision taken on the basis of this article. Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

For individual nature of tax implications, investors are requested to consult their tax advisors before investing

Mutual Fund Investments are subject to market risks, read all scheme related documents carefully

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