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 Dynamic Fund (Div-A) - 11.69Motilal Oswal Dynamic Fund (Div-Q) - 11.6724Motilal Oswal Dynamic Fund (G) - 12.1119Motilal Oswal Dynamic Fund-Dir (Div-A) - 11.9487Motilal Oswal Dynamic Fund-Dir (Div-Q) - 11.889Motilal Oswal Dynamic Fund-Dir (G) - 12.3417Motilal Oswal Focused 25 Fund - Direct (D) - 17.4563Motilal Oswal Focused 25 Fund - Direct (G) - 23.0257Motilal Oswal Focused 25 Fund (D) - 16.048Motilal Oswal Focused 25 Fund (G) - 21.4517Motilal Oswal Long Term Equity Fund (D) - 16.2273Motilal Oswal Long Term Equity Fund (G) - 17.9592Motilal Oswal Long Term Equity Fund -Dir (D) - 17.0615Motilal Oswal Long Term Equity Fund -Dir (G) - 18.8062Motilal Oswal Midcap 30 Fund (D) - 20.341Motilal Oswal Midcap 30 Fund (G) - 25.5952Motilal Oswal Midcap 30 Fund-Dir (D) - 21.6243Motilal Oswal Midcap 30 Fund-Dir (G) - 26.9864Motilal Oswal Multicap 35 Fund (D) - 24.4709Motilal Oswal Multicap 35 Fund (G) - 26.613Motilal Oswal Multicap 35 Fund-Dir(D) - 25.5326Motilal Oswal Multicap 35 Fund-Dir(G) - 27.6788Motilal Oswal Ultra Short Term Fund - Dir (Div-D) - 10.0005Motilal Oswal Ultra Short Term Fund - Dir (Div-F) - 10.0002Motilal Oswal Ultra Short Term Fund - Dir (Div-M) - 10.0115Motilal Oswal Ultra Short Term Fund - Dir (Div-Q) - 10.0837Motilal Oswal Ultra Short Term Fund - Dir (Div-W) - 10.0044Motilal Oswal Ultra Short Term Fund - Dir (G) - 13.8502Motilal Oswal Ultra Short Term Fund (Div-D) - 10.0107Motilal Oswal Ultra Short Term Fund (Div-F) - 9.9997Motilal Oswal Ultra Short Term Fund (Div-M) - 10.0105Motilal Oswal Ultra Short Term Fund (Div-Q) - 10.0886Motilal Oswal Ultra Short Term Fund (Div-W) - 10.0046Motilal Oswal Ultra Short Term Fund (G) - 13.4917

Systematic Withdrawal Plan – A Liquidity Management Tool

Blogs Blog Details

Mr. Aashish Somaiyaa

Managing Director and CEO

Dear Investor and my dear Advisor friends,

Over the years one of the prime objections to investing in equities has been that of possibility of potential capital losses. But the excellent track record of managed products building faith coupled with sustained growth in Indian stock markets over the years, has resulted in increased subscription to equities and equity linked products across mutual funds, pension funds, insurance, alternates and direct equities. That equity can deliver higher returns over the long term now seems to be finding acceptability with investors. The systematic investing culture has taken serious root and a large population of investors have already seen excellent results.

While new investors seem to be coming in a cursory analysis of the market numbers will tell you that this is a fundamentally strong flow because it is existing investors who are increasing their commitments and not just new investors coming in hordes drawn by immediate past performance. Let me illustrate by way of a back of the envelope calculations. In this financial year the net inflow into equity mutual funds has been in the range of Rs. 15,000 to Rs 20,000 crs per month. The average flow by way of existing monthly SIP commitments has been around Rs. 4,800 crs. We are witnessing an average about 5L to 6L new SIP registrations at an average of about Rs 3,500 per instalments which tells us that in addition an SIP book of Rs 4,800 crs new SIP registrations should add another Rs 200 crs for the month so lets take an average SIP book of Rs 5,000 crs. Further, about 4L new folios are created per month and there the average lumpsum should be in the vicinity of Rs 50,000 to Rs 60,000 giving another Rs 2500 crs inflow. The EPFO seems to be committing at a rate of about Rs 2,000 crs a month – all of this tells us that the recurring flow keeping current dynamic in mind is near about Rs 10,000 crs. So where is the other Rs 5,000 to Rs 10,000 crs per month coming from? Just as SIP is to be seen as increased commitment from the same investors, this additional flow of Rs 5,000 to Rs 10,000 crs per month is nothing but further commitment from existing investors albeit by way of cutting a cheque instead of the slow, steady, consistent SIP mode. A lot of market observers seem to conjecture that if the market were not to remain so buoyant, then flows would dry up. I don’t disagree with that observation because good immediate past performance keeps the courage going and bad immediate past performance dampens sentiment. Having said so, the flows can’t be as fickle minded as is being assumed because I know for a fact that investors who have been “in the money” in the past and have seen marked-to-market gains in their portfolios are more willing to tolerate the downside. A loss in profit is seen differently by the human mind as against a loss in capital even if the loss in absolute terms may be more. Once you “show them the money”, there is faith and willingness to keep patience. But investors who come in new and come in last who have never been “in the money”, are more likely to lose faith and run for the exit. I prefer to explain this in Hindi because that’s the language which activates “bhavnaon ko samjho” as an emotion. So let me say “naphe mein nuksaan chalta hai lekin asal mein nuksan nahin chalega” is how minds work.

A lot of investors have reservations against investing in equities because they feel the need for regular incomes like monthly, quarterly or at annual frequencies. And dividends from equity funds in their strictest sense should be a function of NAV growth and booking of profits from such growth. Whether it is dividend or a redemption by the investor for want of cashflow income; if such outflow happens without growth in NAV the basically it’s the investor’s capital being returned back to the investor. This is where I chanced upon an interesting thought. Equity can give great returns is now widely accepted but how does one manage cashflows. Fixed income securities by nature are interest bearing and the cashflow from the interest fulfils requirements. But we all know the return potential of fixed income securities and just for securing cashflow if one chooses fixed income investments then it’s a mighty sub-optimal choice to make. Need for cashflows doesn’t mean one has to give up on returns. One needs to learn to segregate the two. Lets say the annual cashflow required by an investor is Rs 10L or about Rs 80,000 a month. Over long periods of time the index itself has returned around 15% CAGR and good funds have delivered anywhere between 20% to 25% CAGR in the same time frame. CAGR obviously in some form represents average returns and average by definition means that there is a minimum and a maximum on which the average is built and while the average may look like a nice and sane number, it’s the minimum and the maximum which gets investors’ goat. It is precisely this frequent occurrence of deviation from the average towards the minimum which trashes the “cashflow” requirement.

Going forward we don’t extrapolate 15% on the index and 20% - 25% on good funds because these numbers came in a different era of inflation and interest rates. For sake of working arguments, let’s say index delivers 10%-12% and good funds deliver in the range of 15%-16% over the next few years. What would happen if one were to invest Rs 1 cr in a fund of choice and instruct the fund to pay Rs 80,000 per month irrespective of where the long range average (CAGR), the minium and maximum lies. Just ignore whether we are close to the average phase, whether we are deviating below or above the average and keep taking Rs 80,000 per month off the table to meet your requirements. What do you think would happen? Intuitively if the fund actually delivers in line with expectations over the entire time frame of investments, one would see that since the return on the fund is much higher than the cashflow required, eventually not only the capital would be preserved like a good fixed income instrument should but also one would end up with some growth like a good equity investment should enable!

Next Trillion Dollar Opportunity

Date

NAV 

Units Held

Units Sold (Assuming 80000 reedeemed monthly)

Remaining Units

Amount after Withdrawal

3-Aug-15

41.0028

243885.717

 

 

10000000.00

1-Sep-15

37.9137

 

2110.06

241775.66

9166603.87

1-Oct-15

37.6160

 

2126.76

239648.90

9014622.68

2-Nov-15

37.0052

 

2161.86

237487.05

8788255.60

1-Dec-15

36.4929

 

2192.21

235294.84

8586590.99

1-Jan-16

37.8603

 

2113.03

233181.81

8828333.15

1-Feb-16

35.2406

 

2270.11

230911.70

8137466.77

1-Mar-16

33.2928

 

2402.93

228508.77

7607686.72

1-Apr-16

36.1562

 

2212.62

226296.15

8182001.82

2-May-16

37.0339

 

2160.18

224135.97

8300629.24

1-Jun-16

38.3777

 

2084.54

222051.42

8521827.73

1-Jul-16

40.7479

 

1963.29

220088.13

8968130.44

1-Aug-16

46.5531

 

1718.47

218369.66

10165782.00

1-Sep-16

47.1156

 

1697.95

216671.71

10208623.01

3-Oct-16

48.0371

 

1665.38

215006.34

10328288.99

1-Nov-16

48.1640

 

1660.99

213345.34

10275556.36

1-Dec-16

43.4091

 

1842.93

211502.41

9181118.92

2-Jan-17

42.8955

 

1865.00

209637.41

8992494.33

1-Feb-17

46.6686

 

1714.21

207923.19

9703484.31

1-Mar-17

47.8722

 

1671.12

206252.08

9873738.60

3-Apr-17

49.8236

 

1605.66

204646.41

10196225.40

2-May-17

51.8486

 

1542.96

203103.46

10530621.98

1-Jun-17

53.1971

 

1503.84

201599.62

10724508.12

3-Jul-17

53.0625

 

1507.66

200091.96

10617377.67

1-Aug-17

55.9388

 

1430.13

198661.83

11112909.77

1-Sep-17

55.8259

 

1433.03

197228.80

11010475.40

XIRR





14.37%


Motilal Oswal MOSt Focused Multicap 35 Fund

Date

NAV 

Units Held

Units Sold (Assuming 80000 reedeemed monthly)

Remaining Units

Amount after Withdrawal

3-Aug-15

18.3467

545057.1492

 

 

10000000

1-Sep-15

17.028

 

4698.14

540359.01

9201233

1-Oct-15

17.7457

 

4508.13

535850.87

9509049

2-Nov-15

17.5311

 

4563.32

531287.55

9314055

1-Dec-15

17.4352

 

4588.42

526699.13

9183105

1-Jan-16

17.8328

 

4486.12

522213.02

9312520

1-Feb-16

16.4054

 

4876.44

517336.57

8487113

1-Mar-16

15.7797

 

5069.80

512266.77

8083416

1-Apr-16

16.5565

 

4831.94

507434.83

8401345

2-May-16

17.2203

 

4645.68

502789.15

8658180

1-Jun-16

17.7551

 

4505.75

498283.40

8847072

1-Jul-16

18.3063

 

4370.08

493913.32

9041725

1-Aug-16

19.718

 

4057.21

489856.12

9658983

1-Sep-16

19.8942

 

4021.27

485834.84

9665296

3-Oct-16

20.7042

 

3863.95

481970.89

9978822

1-Nov-16

20.98

 

3813.16

478157.74

10031749

1-Dec-16

19.5537

 

4091.30

474066.44

9269753

2-Jan-17

19.1086

 

4186.60

469879.84

8978746

1-Feb-17

21.0299

 

3804.11

466075.74

9801526

1-Mar-17

21.7021

 

3686.28

462389.46

10034822

3-Apr-17

22.7096

 

3522.74

458866.72

10420680

2-May-17

23.7443

 

3369.23

455497.49

10815469

1-Jun-17

24.0577

 

3325.34

452172.15

10878222

3-Jul-17

23.9132

 

3345.43

448826.72

10732883

1-Aug-17

25.5324

 

3133.27

445693.44

11379623

1-Sep-17

26.1913

 

3054.45

442638.99

11593291
XIRR



16.99%


The learning is clear – we are making a huge mistake by linking our need for cashflow with the return on the underlying investment. As long as the underlying investment delivers over a sufficiently long period of time, we should not be averse to taking out the required cashflow at regular intervals. The key condition being that at any time the annual cashflow taken out has to be well below a conservative estimation of the likely long term CAGR on the investment. While taking cashflow the capital shouldn’t get eroded to such an extent that the entire future growth is jeopardised.

At the same time we must note that taking our regular cashflows is definitely going to reduce the effective compounding rate and exit returns. But at the same time, it is a way better idea than to park the corpus into fixed income just because we want cashflow without capital fluctuation.

Any investment option can only be evaluated on three parameters:
1. Safety
2. Liquidity
3. Returns       
A fixed income instrument can provide liquidity and safety with regular cashflow (a facet of liquidity itself) but of course it would be sub-optimal on returns. The above plan would keep the investment in a high return investment option and provide liquidity and to that extent fluctuation in capital value has to be tolerated albeit for intervening periods and not at all if the likely exit is sufficiently long term in nature. Need for liquidity doesn’t compromise return and that’s a good option to have.

Keeping these observations in mind we have now introduced MOSt Focused CashFlow Plan in all our equity funds – Motilal Oswal MOSt Focused 25 Fund, MOSt Focused MidCap 30 Fund, MOSt Focused MultiCap 35 Fund and MOSt Focused Dynamic Equity Fund. Now you can register a CashFlow requirement at the rate of 7.5% annualised or 10% annualised. The payout can be opted for on monthly, quarterly, half yearly and annual basis. Wish you happy investing and I hope you make use of this facility which enables you to enjoy equity compounding without sacrificing need for cashflows and vice versa. It is most appropriate if one consults their financial advisor and draws up accurate calculations instead of relying on conversational “back of the envelope” inputs. While we have of course done our homework and been conservative in our assumptions before we introduced such a feature, I urge you to do some excel work on a lazy Sunday and figure out the numbers for yourself.

Finally, talking of CashFlow there’s one other thing I’d like to take the opportunity to let you know. While the above plan is suited for a regular CashFlow to meet your regular requirements; every once in a few years it does happen that the markets reward us way more than what we would have imagined. Like the current times where money has pretty much doubled in last 3 years in most cases as against the usual 15% CAGR kind of assumptions that we loosely make. Whatever the baseline assumptions maybe I am sure 25-30% CAGR or doubling of money in less than 3 years is phenomenal return and way more than anticipated. Asking for more would be sheer greed. At times like this I notice people spend more time discussing where the market will go - further higher or will it turn back. Arre bhai; forget the market. As some wiseman said; look within. If you have got more than what you ever imagined or more than what you actually deserve take some money off the table. In the long run our portfolios should deliver in line with earnings growth but there are times when stock prices lead earnings - and lead they can by a margin. We anyway bear the brunt when stock prices lag the earnings; so why not take some joy when they lead. If you think you got what you thought you should or more than what you imagined; it’s always wise to take some off the table and let the rest participate in the market. Let me tell you; don’t wait for us to take cash on your behalf; we will not (except in MOSt DEF). That’s because we don’t know your asset allocation. Some of you have given us 2% of your total portfolio and some of you have given us 20% of your portfolio. Whatever that is; is opaque to us. It’s between you and your advisors you decide the return expectation to meet your goal; the risk tolerance; the asset allocation and the choice of investment options. If the money is given to us in an equity fund we invest in equity with the aim of beating the index and providing decent absolute return over 5 years.

Happy Investing,

Yours sincerely,
Aashish P Somaiyaa
Managing Director and CEO


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