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

How flexible is your large cap fund

Blog Blog Details
  • January 05, 2021
  • Siddharth Bothra|
  • Fund Manager
Markets are increasingly becoming more dynamic and efficient. In such markets, unless a fund has significant flexibility with regard to its investment universe, it is difficult for a fund to outperform its benchmark. This is particularly true for the large cap category. We discuss below the importance of flexibility for a large cap fund and how the focused large cap fund category has a distinct advantage, in this regard. 

In line with the worldwide trend, the proliferation of ETF’s (Exchange Traded Funds) has been increasing in India. This has heightened investor scrutiny of value added by active funds, measured in the form of ‘Alpha’ (returns earned over and above market after deducting costs). Unless a fund has investments, which are different from the benchmark, it is difficult for a fund to outperform its benchmark. The ability of a fund to be distinct from its benchmark is highly dependent on the flexibility it enjoys with regard to its investment universe. Hence, funds with high investment universe flexibility have an advantage. 

Typically, even within active funds there can be two broad categories based on their active ratio. There are funds which have low active ratio (fund weight away from benchmark) and are benchmark hugging, while the other category funds with active ratio on the higher side. Funds in the first bucket is often referred to as closet index funds. A fund with closet index strategy, logically will find it difficult to have returns very different to its benchmark index. In our view, for a large cap fund to meaningfully outperform its benchmark index, it needs to have a high active ratio and also be benchmark agnostic. However, this can only be possible if the fund has a flexible investment universe. 

Both large cap and mid cap stocks have their own distinct advantages and disadvantages. While the large cap stocks typically provide higher relative stability and lower volatility, mid cap stocks typically have higher proportion of young high growth companies and emergence stories. Historically, the variance range between the large and midcaps have varied significantly across market cycles. Hence, having an ideal mix of large cap and mid cap stocks can optimize long term returns of a fund. Furthermore, our study based on index performance of large cap Nifty 50 Index and Midcap 100 Index, suggest that the ideal mix of large and mid-cap stocks for an investor to optimize their risk reward ratio (attain higher Shape Ratio) is ~74% large cap and 26% midcaps. A focused large cap fund is in a position to achieve this ideal ratio.

In the past, a traditional large cap fund used to have very low flexibility with its investment universe restricted to top 100 stocks by market capitalization. The SEBI reclassification of investment universe in 2018, changed this and provided large cap funds with some much needed flexibility. As such, post reclassification a large cap fund have the flexibility to invest up to 20% of its corpus across market cap, while 80% of its corpus still needs to be invested in top 100 stocks by market capitalization. Compared to this, a focused large cap fund has lot more flexibility with regard to its investment universe. A focused large cap fund needs to invest a minimum of 65% in the top 100 stocks and have flexibility to invest across market capitalization for the other 35% of the fund. This flexibility to have a wider investment universe is an advantage that the focused large cap funds can leverage on over the long term. 

In this regard, we believe our large cap fund Motilal Oswal Focused 25 Fund, is one of the most flexible large cap funds and has several unique advantages. Firstly, it is a pure active (active ratio of ~58%) and benchmark agnostic fund (no sector limits), Secondly, it has focused and concentrated holdings (<25 stocks, with top 5 and top 10 stocks accounting for ~42% and 70% weight) and Thirdly, it has higher flexibility with regard to investment universe (minimum investment in Top 100 stocks by market capitalization limited to 65%, with a high flexibility to invest across market capitalization up to 35%).
Consequently, we feel, investors should incorporate the aspect of evaluating how flexible their large cap fund is, along with the other key parameters, while shortlisting their funds or assessing the ability of a fund to significantly outperform its benchmark.

By Mr. Siddharth Bothra, Fund Manager, Motilal Oswal AMC

This article was originally published in The Telegraph on 4th Jan, 2021


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