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.
Motilal Oswal Asset Allocation Passive Fund of Fund – Aggressive (G) - 10.6741Motilal Oswal Asset Allocation Passive Fund of Fund – Aggressive-Dir (G) - 10.6893Motilal Oswal Asset Allocation Passive Fund of Fund – Conservative (G) - 10.5364Motilal Oswal Asset Allocation Passive Fund of Fund – Conservative-Dir(G) - 10.5532Motilal Oswal Dynamic Fund (Div-A) - 13.5064Motilal Oswal Dynamic Fund (Div-Q) - 12.0966Motilal Oswal Dynamic Fund (G) - 14.9036Motilal Oswal Dynamic Fund-Dir (Div-A) - 13.6715Motilal Oswal Dynamic Fund-Dir (Div-Q) - 12.2594Motilal Oswal Dynamic Fund-Dir (G) - 15.7315Motilal Oswal Equity Hybrid Fund - Direct (G) - 14.9593Motilal Oswal Equity Hybrid Fund - Regular (G) - 14.3119Motilal Oswal Flexi Cap Fund(D) - 24.9521Motilal Oswal Flexi Cap Fund(G) - 33.1944Motilal Oswal Flexi Cap Fund-Dir(D) - 24.9694Motilal Oswal Flexi Cap Fund-Dir(G) - 35.5144Motilal Oswal Focused 25 Fund - Direct (D) - 20.4246Motilal Oswal Focused 25 Fund - Direct (G) - 34.8895Motilal Oswal Focused 25 Fund (D) - 18.3723Motilal Oswal Focused 25 Fund (G) - 31.3034Motilal Oswal Large and Midcap Fund - Dir (D) - 15.0008Motilal Oswal Large and Midcap Fund - Dir (G) - 15.0008Motilal Oswal Large and Midcap Fund (D) - 14.57Motilal Oswal Large and Midcap Fund (G) - 14.57Motilal Oswal Liquid Fund - Direct (Div-D) RI - 10.0077Motilal Oswal Liquid Fund - Direct (Div-F) RI - 10.0068Motilal Oswal Liquid Fund - Direct (Div-M) - 10.0442Motilal Oswal Liquid Fund - Direct (Div-Q) - 10.0694Motilal Oswal Liquid Fund - Direct (Div-W) RI - 10.0083Motilal Oswal Liquid Fund - Direct (G) - 11.1042Motilal Oswal Liquid Fund - Regular (Div-D) RI - 10.0055Motilal Oswal Liquid Fund - Regular (Div-F) RI - 10.0066Motilal Oswal Liquid Fund - Regular (Div-M) - 10.0434Motilal Oswal Liquid Fund - Regular (Div-Q) - 10.0663Motilal Oswal Liquid Fund - Regular (Div-W) RI - 10.0154Motilal Oswal Liquid Fund - Regular (G) - 11.0628Motilal Oswal Long Term Equity Fund (D) - 18.9673Motilal Oswal Long Term Equity Fund (G) - 24.1448Motilal Oswal Long Term Equity Fund -Dir (D) - 22.5586Motilal Oswal Long Term Equity Fund -Dir (G) - 26.3202Motilal Oswal Midcap 30 Fund (D) - 21.9396Motilal Oswal Midcap 30 Fund (G) - 35.9137Motilal Oswal Midcap 30 Fund-Dir (D) - 22.6487Motilal Oswal Midcap 30 Fund-Dir (G) - 39.3237Motilal Oswal Multi Asset Fund - Direct (G) - 10.7049Motilal Oswal Multi Asset Fund (G) - 10.5652Motilal Oswal Nasdaq 100 FOF - Direct (G) - 21.7182Motilal Oswal Nasdaq 100 FOF - Regular (G) - 21.4982Motilal Oswal Nifty 50 Index Fund - Direct (G) - 13.1123Motilal Oswal Nifty 50 Index Fund (G) - 13.0304Motilal Oswal Nifty 500 Fund - Direct (G) - 15.2785Motilal Oswal Nifty 500 Fund (G) - 15.1033Motilal Oswal Nifty Bank Index Fund - Direct (G) - 12.6493Motilal Oswal Nifty Bank Index Fund (G) - 12.505Motilal Oswal Nifty Midcap 150 Index Fund (G) - 17.9037Motilal Oswal Nifty Midcap 150 Index Fund-Dir (G) - 18.1149Motilal Oswal Nifty Next 50 Index Fund - Dir (G) - 13.6955Motilal Oswal Nifty Next 50 Index Fund (G) - 13.5607Motilal Oswal Nifty Smallcap 250 Index Fund (G) - 18.3538Motilal Oswal Nifty Smallcap 250 Index Fund-Dir(G) - 18.5688Motilal Oswal S&P 500 Index Fund - Direct (G) - 14.0875Motilal Oswal S&P 500 Index Fund (G) - 13.9767Motilal Oswal Ultra Short Term Fund - Dir (Div-D) - 9.91Motilal Oswal Ultra Short Term Fund - Dir (Div-F) - 9.9314Motilal Oswal Ultra Short Term Fund - Dir (Div-M) - 9.9171Motilal Oswal Ultra Short Term Fund - Dir (Div-Q) - 10.0598Motilal Oswal Ultra Short Term Fund - Dir (Div-W) - 9.921Motilal Oswal Ultra Short Term Fund - Dir (G) - 14.0415Motilal Oswal Ultra Short Term Fund (Div-D) - 9.8772Motilal Oswal Ultra Short Term Fund (Div-F) - 9.8877Motilal Oswal Ultra Short Term Fund (Div-M) - 9.8777Motilal Oswal Ultra Short Term Fund (Div-Q) - 10.0212Motilal Oswal Ultra Short Term Fund (Div-W) - 9.8807Motilal Oswal Ultra Short Term Fund (G) - 13.6038

How ELSS can be your stepping stone to long-term equity investments

Blog Blog Details
  • December 23, 2020
  • Umang Thaker|
  • Head of Products

The default feature of equity lock-in prevents investors from making hasty redemptions

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 the ‘default setting’ is 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.

Power of good defaults

Today, the ‘Default Effect’ and ‘Nudge Theory’ are widely used as effective tools in administering public policy. The US administration uses the principles of Nudge for encouraging long-term savings in its 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 the ‘effort’ for not pledging their organs. It is no surprise that these countries have 99 per cent and 86 per cent organ donation rates, respectively, as opposed to 12 per cent in Germany and 17 per cent in the UK.

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

‘Lock-in’ prevents impulsive mistakes

Volatility in the stock markets affects 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 a lock-in period of three years. This can prevent reactions caused by the fear induced through sharp corrections.

The year 2020 is a good case in point. The sharp correction led to an about ?25,000 crore redemption in equity mutual funds in March. Markets saw a V-shaped recovery from the bottom — the Nifty 50 bottomed out wiping out 35 per cent from the index and climbed back to scale all-time highs in December 2020. The default choice of three-year lock-in would have saved many an investor from the need to react.

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

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

Two key concerns

Two valid critiques of ‘lock-in’ are: liquidity issues, and three years being a good enough time horizon.

1) Liquidity: Tax saving options with a higher lock-in period compared to ELSS include the National Saving Certificate, Senior Citizen Saving Scheme, bank FDs, unit linked insurance plans (all with 5-years lock-in), PPF (15 years lock-in) and the National Pension Scheme (lock-in until retirement)

If liquidity were of paramount importance to investors, then these tax saving options would have got far fewer 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 three-year rolling returns for all ELSS funds since the inception of this category (1996).The average three-year rolling return (calculated on a daily rolling basis) for all ELSS schemes is 14.85 per cent.

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.

(The writer is Head-Products, Motilal Oswal AMC Ltd)

The article was originally published in Hindu on 23rd Dec, 2020

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