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) - 11.5211Motilal Oswal Dynamic Fund (Div-Q) - 11.3635Motilal Oswal Dynamic Fund (G) - 12.2479Motilal Oswal Dynamic Fund-Dir (Div-A) - 11.9736Motilal Oswal Dynamic Fund-Dir (Div-Q) - 11.5369Motilal Oswal Dynamic Fund-Dir (G) - 12.646Motilal Oswal Equity Hybrid Fund - Direct (G) - 10.6548Motilal Oswal Equity Hybrid Fund - Regular (G) - 10.4956Motilal Oswal Focused 25 Fund - Direct (D) - 17.1518Motilal Oswal Focused 25 Fund - Direct (G) - 23.2848Motilal Oswal Focused 25 Fund (D) - 15.4729Motilal Oswal Focused 25 Fund (G) - 21.3491Motilal Oswal Liquid Fund - Direct (Div-D) RI - 10.0077Motilal Oswal Liquid Fund - Direct (Div-F) RI - 10.008Motilal Oswal Liquid Fund - Direct (Div-M) - 10.0534Motilal Oswal Liquid Fund - Direct (Div-Q) - 10.1223Motilal Oswal Liquid Fund - Direct (Div-W) RI - 10.0096Motilal Oswal Liquid Fund - Direct (G) - 10.4377Motilal Oswal Liquid Fund - Regular (Div-D) RI - 10.0055Motilal Oswal Liquid Fund - Regular (Div-F) RI - 10.0078Motilal Oswal Liquid Fund - Regular (Div-M) - 10.0527Motilal Oswal Liquid Fund - Regular (Div-Q) - 10.1074Motilal Oswal Liquid Fund - Regular (Div-W) RI - 10.0166Motilal Oswal Liquid Fund - Regular (G) - 10.4261Motilal Oswal Long Term Equity Fund (D) - 14.7221Motilal Oswal Long Term Equity Fund (G) - 16.6149Motilal Oswal Long Term Equity Fund -Dir (D) - 15.7612Motilal Oswal Long Term Equity Fund -Dir (G) - 17.6953Motilal Oswal Midcap 30 Fund (D) - 17.2879Motilal Oswal Midcap 30 Fund (G) - 24.1482Motilal Oswal Midcap 30 Fund-Dir (D) - 18.8258Motilal Oswal Midcap 30 Fund-Dir (G) - 25.8814Motilal Oswal Multicap 35 Fund (D) - 22.052Motilal Oswal Multicap 35 Fund (G) - 25.0303Motilal Oswal Multicap 35 Fund-Dir(D) - 23.3427Motilal Oswal Multicap 35 Fund-Dir(G) - 26.3536Motilal Oswal Nasdaq 100 FOF - Direct (G) - 11.8641Motilal Oswal Nasdaq 100 FOF - Regular (G) - 11.8263Motilal Oswal Nifty 500 Fund - Direct (G) - 10.0894Motilal Oswal Nifty 500 Fund (G) - 10.0874Motilal Oswal Nifty Bank Index Fund - Direct (G) - 10.194Motilal Oswal Nifty Bank Index Fund (G) - 10.192Motilal Oswal Nifty Midcap 150 Index Fund (G) - 10.1853Motilal Oswal Nifty Midcap 150 Index Fund-Dir (G) - 10.1873Motilal Oswal Nifty Smallcap 250 Index Fund (G) - 10.3331Motilal Oswal Nifty Smallcap 250 Index Fund-Dir(G) - 10.3352Motilal Oswal Ultra Short Term Fund - Dir (Div-D) - 9.2197Motilal Oswal Ultra Short Term Fund - Dir (Div-F) - 9.237Motilal Oswal Ultra Short Term Fund - Dir (Div-M) - 9.2263Motilal Oswal Ultra Short Term Fund - Dir (Div-Q) - 9.3589Motilal Oswal Ultra Short Term Fund - Dir (Div-W) - 9.23Motilal Oswal Ultra Short Term Fund - Dir (G) - 13.0636Motilal Oswal Ultra Short Term Fund (Div-D) - 9.2231Motilal Oswal Ultra Short Term Fund (Div-F) - 9.2327Motilal Oswal Ultra Short Term Fund (Div-M) - 9.2235Motilal Oswal Ultra Short Term Fund (Div-Q) - 9.3576Motilal Oswal Ultra Short Term Fund (Div-W) - 9.2264Motilal Oswal Ultra Short Term Fund (G) - 12.7032

Buy Right Sit Tight Insights - June 2019

Blog Blog Details
  • June 18, 2019
  • Mr. Raamdeo Agrawal|
  • Chairman
Dear investor friends,

When it comes to mutual funds, worldwide, there is a raging debate between active and passive funds. The latter have been steadily gaining market share given their value proposition of low management fees.

In this edition of BRST Insights , I explore the active versus passive debate in the Indian context.

Active v/s Passive Funds – the Indian context

What’s an Active Fund
As the name suggests, an actively managed fund is one in which a manager makes decisions about how to invest the fund s money. Managing an Active Fund involves active buying and selling of stocks with the objective of outperforming a chosen benchmark index. To achieve this, the mutual fund engages the services of portfolio managers and analysts. Such cost of managing an Active Fund is recovered from the mutual fund investors by way of a management fee (currently around 2% in India).

What’s a Passive Fund
In contrast to an Active Fund, a Passive Fund simply follows a market index. It does not have a manager. Thus, a Passive Fund will simply mimic a given benchmark and not make any active buy or sell decisions. For instance, a Nifty 50 Passive Fund will invest in the 50 stocks constituting the Nifty 50 assigning exactly the same weights as in the index. Increasingly, Passive Funds are structured as Exchange Traded Funds (ETFs) i.e. they trade on the exchanges like any other stock.

Active Funds have been in existence since 1770s. In contrast, the first passive index fund was launched only in 1976 by Vanguard Group of the US. Formed by the legendary (Late) John Bogle, Vanguard is today one of the world’s largest mutual funds, specializing in passive investing. Passive Funds are premised on the fact that, net of fees and commissions, Active Funds don’t earn returns significantly higher than the benchmark. So, Passive Funds intend to offer investors a low-cost exposure to the asset class in question, in this case, equities.

Active v/s Passive – the eternal debate
Even as both Active and Passive Funds defend their cause, data suggests that Passive Funds are clearly gaining acceptance vis-à-vis Active. Data compiled by investment research firm MorningStar suggests that in the US, share of equity Passive Funds has consistently risen from 25% in 2009 (approx US$ 0.8 trillion) to almost 48% in 2018 (approx US$ 3.4 trillion), see graph on next page.


Active v/s Passive – the India scenario
In India, Passive Funds have not made any significant inroads so far. In this context, we examined whether there’s a case for Passives to replicate the US success story here too. For this, we observed the performance of Active Funds for various rolling periods of 1 to 5 years over an 11-year period from 2009 to 2019. The findings are tabled below.


The percentage of outperforming Active Funds is healthy across time periods. Equally important to note is the percentage of outperforming funds increases significantly with the time horizon. Thus, over a 1- and 2-year period, about 70% of funds outperform. However, over a 5-year period, as high as 90% of funds outperform.

Going by the above data, there appears to be enough room in India for active investing. One likely reason for this is the fairly high level of non-institutional shareholding. The aggregate promoter holding in India is 50%. Of the balance free float of 50%, nearly a third is still held by individual investors. As institutional investors enjoy both informational and analytical edge over individual investors, the former are likely to outperform at the expense of the latter.


Implications for individual investors
•    Prefer to invest through mutual funds rather than directly.
•    Invest in mutual funds for the long term i.e. preferably at least for five years.
•    Choose fund managers with well-articulated philosophy backed by good long-term performance track record.

I welcome your feedback and suggestions for improvement. Please email the same to insights@motilaloswal.com.

 
Raamdeo Agrawal
Chairman

Note:  The source of all data used in this bulletin is MOAMC internal analysis, unless otherwise mentioned.

Disclaimer
This bulletin has been issued to explain our investment philosophy. The information/stocks mentioned in this document is for general/illustration purposes only and should not be construed as investment advice to any party. The stocks may or may not be part of our portfolio/strategy/schemes. Past performance may or may not be sustained in future. Readers shall be fully responsible/liable for any decision taken on the basis of this bulletin. Past performance may or may not be sustained in the future. This bulletin is not for circulation in general and is meant for intended recipient only. The bulletin 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.


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