Motilal Oswal Gold and Silver ETFs Fund of Funds (An open ended fund of funds scheme investing in units of gold and silver exchange traded funds)<ul><li>Long term capital appreciation</li></ul><ul><li>Return that corresponds to the performance of the underlying Schemes of Gold ETF and Silver ETF.</li></ul>

Factsheet

Presentations

Leaflets/Brochures

Investment Horizon

For Whom

Allocations

Number of Stocks

Mr. Rakesh Shetty has more than 13 years of overall experience and expertise in trading in equity, debt segment, Exchange Trade Fund’s management, Corporate Treasury and Banking. Prior to joining Motilal Oswal Asset Management Company Limited, he has worked with Company engaged in Capital Market Business wherein he was in charge of equity and debt ETFs, customized indices and has also been part of product development.

Ajay has 13 years rich experience in fund management and research related activity. Prior to joining Motilal Oswal Asset Management Company Limited he has worked with Canara Robeco Asset Management Company Limited handling Small Cap Fund. He has done post-graduation i.e. MBA from Manipal University. Mr. Ajay possess expertise in Fund Management.

Mr Atul Mehra is passionate about investing; and has been an investor since 13 years of age. He has over 15 years of professional work experience with last 10 years within Motilal Oswal Group, prior to which he worked with Edelweiss Capital for another 5 years. Academically, he is a CFA Charter holder and has completed the Chartered Financial Analyst (CFA) Program, from CFA Institute, Charlottesville, Virginia, USA and has specialization in Finance through BAF (Bachelor of Commerce in Accounting and Finance) from HR College, Mumbai and Post-Graduation in Commerce through M.Com (Masters in Commerce, Accountancy) from Mumbai University. 

Mr. Sunil has been associated with the Company since 2018 for Alternates Business as Dealer. Prior to joining to Motilal Oswal Asset Management Company he has worked with Sharekhan, Aditya Birla and Angel Broking as Equity Dealer and Advisor. He has been associated in capital market industry since 2009. Mr. Sunil Sawant is appointed as Fund Manager in place of Mr. Ankush Sood w.e.f. opening of Business hours of July 1, 2024.

Mr. Bhalchandra Shinde has over 13 years of extensive experience in equity research, a testament to his professional journey marked by significant expertise and contributions to the field. Before assuming his current role at MOAMC, Mr. Shinde dedicated three years to Kotak Mahindra Life Insurance as an Investment Analyst, where he oversaw research across various sectors, including Auto, Oil and Gas, and Real Estate. His career also includes notable associations with Max Life Insurance and Centrum Broking, further underscoring his commitment and impact on the field of equity research.

Riding market trends with Momentum Investing

What is Momentum Investing &#8211; A Simple Explanation

The Basics of Passive Investing — Understanding Index Funds

How to Invest in Index Funds

Large-cap Stocks, Small-cap Stocks, Mid-cap Stocks — What is the difference?

Momentum investing is a strategy that invests in securities that have momentum (usually upward trending prices) and looks to sell them once they lose momentum. It works under the hypothesis that markets will continue to move in a particular direction for a much longer period than most people assume is possible. It implies that well-performing securities will continue to do so &amp; vice versa.



The momentum for a security is decided basis the price trend. Since all decisions revolve around price, for momentum, ‘Price is the almighty’ or popularly known as ‘Bhaav bhagwaan che’.



“The premier market anomaly is momentum. Stocks with low returns over the past year tend to have low returns for the next few months, and stocks with high past returns tend to have high future returns.”



– Eugene Fama and Ken French (fathers of Efficient Market Hypotheses)



<h3>Does Momentum work?</h3>



Is the momentum strategy bang for the buck? A good starting point will be to look at the historical performance &amp; the consistency of the returns. In Exhibit 1 we can see that momentum has outperformed broad-based equity across different periods. In longer-term periods, the out performance is significant, particularly over a period of 10 years.



Exhibit 1



<figure class="wp-block-table"><table><tbody><tr><td>Index Performance</td></tr><tr><td>Index</td><td>1 year</td><td>3 year</td><td>5 year</td><td>10 year</td><td>15 year</td></tr><tr><td>Momentum</td><td>75.20%</td><td>33.70%</td><td>35.90%</td><td>25.70%</td><td>23.80%</td></tr><tr><td>Equity Markets</td><td>27.80%</td><td>17.90%</td><td>18.90%</td><td>13.80%</td><td>13.20%</td></tr><tr><td>Outperformance</td><td>47.40%</td><td>15.80%</td><td>17%</td><td>11.90%</td><td>10.60%</td></tr></tbody></table></figure>



Momentum = Nifty500 Momentum 50 Total Return Index



Equity Markets = Nifty 50 Total Return Index



Source/Disclaimer:MOAMC Research, NSE; Data as of 31-Jul-2024. The information / data herein alone is not sufficient and should not be used for implementation of an investment strategy. The table/charts mentioned above are used to explain the concept and is for illustration purpose only It should not be construed as an investment advice to any party. Past performance may or may not be sustained in future and is not a guarantee of any future return



Exhibit 2



<div class="wp-block-image"><figure class="aligncenter size-large"><img loading="lazy" width="979" height="422" src="https://www.motilaloswalmf.com/investor-education/wp-content/uploads/2024/09/image.png" alt="" class="wp-image-5311" srcset="https://www.motilaloswalmf.com/investor-education/wp-content/uploads/2024/09/image.png 979w, https://www.motilaloswalmf.com/investor-education/wp-content/uploads/2024/09/image-300x129.png 300w, https://www.motilaloswalmf.com/investor-education/wp-content/uploads/2024/09/image-768x331.png 768w, https://www.motilaloswalmf.com/investor-education/wp-content/uploads/2024/09/image-750x323.png 750w" sizes="(max-width: 979px) 100vw, 979px" /></figure></div>



Momentum = Nifty500 Momentum 50 Total Return Index



Equity Markets = Nifty 50 Total Return Index



Source/Disclaimer: niftyindices. Performance as of close of 31-Dec-06 to 31-Jul-24. *2024 till year to date. Performance results have many inherent limitations and no representation is being made that any investor will, or is likely to achieve. Past performance may or may not be sustained in future and is not guarantee of any future returns. The above graph is used to explain the concept and is for illustration purpose only and should not used for development or implementation of an investment strategy.



As shown in Exhibit 2, the momentum strategy has outperformed the broad-based Nifty 500 index in 12 out of the last 19 years. Both the exhibits clearly show that the strategy has worked historically in the Indian markets &amp; investors should have a look at it.



<h3>Is it the perfect strategy then?</h3>



Momentum is not perfect &amp; does have its limitations. As the strategy picks up securities with the highest motion/momentum, historically it is observed that such strategies experience higher volatility. Further, such strategies fall more during market corrections (downtrend) compared to broad-based equity. Since this is a trend based strategy, it has to strictly follow market movements which results in higher portfolio churn. The best way to address these is to invest with a fairly long term investment horizon.



To conclude, momentum has performed well in the past &amp; may continue to do so as long as it can take advantage of the mispricing in the market. Studies show that it has worked across various markets &amp; in India, it is becoming increasingly popular among investors. Such a strategy is best suited for a long term investor. Considering the risks, momentum has the potential to deliver returns in the long term.



Disclaimer: This publication is pursuant to Investor Education and Awareness Initiative by Motilal Oswal Mutual Fund. This shall not be construed as offer to invest in any financial product or Scheme. The objective of this publication is restricted to informational purposes only. All investors have to go through a one-time KYC (Know Your Customer) process. For further details on KYC, Change of address, phone number, bank details etc. list of SEBI registered Mutual Funds and redressal of complaints including details about SEBI SCORES portal, visit link <a href="https://www.motilaloswalmf.com/New_Page/KYC-and-Redressal-of-Complaints/9">https://www.motilaloswalmf.com//New_Page/KYC-and-Redressal-of-Complaints/9</a>. SMART ODR portal, visit link <a href="https://smartodr.in/login" target="_blank" rel="noopener">https://smartodr.in/login</a>.  Investors should invest only with SEBI registered Mutual Funds details of which can be verified on the SEBI website under “SEBI Intermediaries/ Market Infrastructure Institutions.



This blog 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 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 the blog 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. Mutual Funds are subject to market risk. Read the offer documents before investing. Readers shall be fully responsible/liable for any investment decision taken on the basis of this article.



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

Momentum investing is a powerful strategy for those looking to maximize returns in the stock market. But what exactly is momentum investing, and how can you apply it to your investment portfolio? In this blog post, we&#8217;ll break down the concept of momentum investing and explain it with an easy-to-understand car purchase example.



<h3>What is Momentum Investing?</h3>



Momentum investing is a strategy that focuses on buying stocks that have shown strong performance over a recent period and selling them when their momentum starts to slow down. The idea behind it is simple: stocks that have been performing well are likely to continue performing well in the near future.



This approach is based on the belief that market trends can persist for some time, allowing investors to profit by &#8220;riding the wave&#8221; of upward momentum. However, it&#8217;s important to know when to exit before the trend reverses.



To make this concept easier to understand, let&#8217;s take an example of buying a car.



Imagine you’re in the market for a new car, and you notice that a particular model is rapidly gaining popularity. It’s receiving great reviews, winning awards, and more people are buying it every day. Seeing this trend, you decide to purchase this car, expecting that its popularity will continue to rise. Because of this popularity, you also anticipate that its resale value will stay high or even increase over time.



In the same way, momentum investing involves buying stocks that are gaining momentum in the market. The goal is to benefit from this upward trend, just as you would benefit from owning a car that is in high demand and increasing in value.



However, just as the popularity of a car model can decline if a newer, better model comes out, the momentum of a stock can also slow down or reverse. The key in momentum investing is to sell the stock before it loses its momentum, similar to selling your car while it’s still in demand, rather than after its popularity fades.



<h3>Why Consider Momentum Investing?</h3>



Momentum investing offers the potential for higher returns by capitalizing on market trends. It’s particularly appealing to growth-oriented investors with a higher risk tolerance. By carefully selecting stocks that are already performing well and monitoring their momentum, investors can optimize their portfolios for greater profitability.



<h3>Final Thoughts</h3>



Momentum investing isn’t about predicting the next major success; it’s about identifying stocks that are already on a strong upward trajectory and leveraging that strength for profit. Just like buying a car that&#8217;s growing in popularity, the key is to ride the trend and know when to exit.



If you&#8217;re interested in aligning your investment strategy with market trends and maximizing your returns, momentum investing could be a valuable approach to consider.



Disclaimer: This publication is pursuant to Investor Education and Awareness Initiative by Motilal Oswal Mutual Fund. This shall not be construed as offer to invest in any financial product or Scheme. The objective of this publication is restricted to informational purposes only. All investors have to go through a one-time KYC (Know Your Customer) process. For further details on KYC, Change of address, phone number, bank details etc. list of SEBI registered Mutual Funds and redressal of complaints including details about SEBI SCORES portal, visit link <a href="https://www.motilaloswalmf.com/New_Page/KYC-and-Redressal-of-Complaints/9">https://www.motilaloswalmf.com//New_Page/KYC-and-Redressal-of-Complaints/9</a>. SMART ODR portal, visit link <a href="https://smartodr.in/login" target="_blank" rel="noopener">https://smartodr.in/login</a>.&nbsp; Investors should invest only with SEBI registered Mutual Funds details of which can be verified on the SEBI website under “SEBI Intermediaries/ Market Infrastructure Institutions.



This blog 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 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 the blog 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. Mutual Funds are subject to market risk. Read the offer documents before investing. Readers shall be fully responsible/liable for any investment decision taken on the basis of this article.



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

Welcome to the world of passive investing, where accumulating wealth is possible even without spending hours browsing the right stock and worrying about how to build your portfolio. In this blog, we&#8217;ll dive into the basics of passive investing, exploring the concept of index funds. For those new to the investing game or just seeking a better understanding, we&#8217;ll break down the concept of index funds, how they work, and why they might be considered a wise investment option for building a solid financial foundation. But first, let’s get a picture of what passive investing is.



<h2>What is Passive Investing?</h2>



If you are new to investing and looking to achieve long-term returns, passive investing might be the way to start. Why? <a href="https://www.motilaloswalmf.com/mutual-funds?key=indexfunds" target="_blank" data-type="URL" data-id="https://www.motilaloswalmf.com/mutual-funds?key=indexfunds" rel="noreferrer noopener">Passive investing</a> allows you to invest hassle-free and gives potential to earn returns in the long run without worrying much about market conditions.



Passive investing instruments track the performance of market indices rather than actively trying to beat them through individual active stock selection. This approach involves low-cost index funds, <a href="https://www.motilaloswalmf.com/etf" target="_blank" data-type="URL" data-id="https://www.motilaloswalmf.com/etf" rel="noreferrer noopener">exchange-traded funds (ETFs)</a>, or similar investment vehicles holding a portfolio of stocks or other assets that closely mirror the index.



The focus of passive investing is to achieve broad market exposure and to minimise investment costs and management fees. Let’s understand one such element of passive investing — <a href="https://www.motilaloswalmf.com/index-fund" target="_blank" data-type="URL" data-id="https://www.motilaloswalmf.com/index-fund" rel="noreferrer noopener">Index Funds</a>.



<h2>What is an Index Fund?</h2>



An index fund is a <a href="https://www.motilaloswalmf.com/" target="_blank" data-type="URL" data-id="https://www.motilaloswalmf.com/" rel="noreferrer noopener">mutual fund</a> that imitates stock market indices such as Sensex and Nifty. Sensex carries a list of 30 top-performing companies, while <a href="https://www.motilaloswalmf.com/mutual-funds/motilal-oswal-nifty-50-index-fund" target="_blank" data-type="URL" data-id="https://www.motilaloswalmf.com/mutual-funds/motilal-oswal-nifty-50-index-fund" rel="noreferrer noopener">Nifty 50</a> holds the top 50 companies with the largest market capitalisations. The index funds that mirror these indices also invest in the same companies that are a part of these indices. Hence, when Sensex or Nifty performs well, the index fund simultaneously provides similar returns. The objective of investing in an <a href="https://www.motilaloswalmf.com/index-fund" target="_blank" data-type="URL" data-id="https://www.motilaloswalmf.com/index-fund" rel="noreferrer noopener">index fund</a> is to provide investors with exposure to the broader market rather than trying to beat it through active stock picking. Hence, <a href="https://www.motilaloswalmf.com/index-fund" target="_blank" data-type="URL" data-id="https://www.motilaloswalmf.com/index-fund" rel="noreferrer noopener">Index funds</a> can be a goldmine of stock picking since they invest in financially sound companies of the index.



<h2>How does an Index fund work?</h2>



In India, index funds are usually offered as mutual funds, where a fund manager invests in the stocks included in the target index in the same proportion as the index. By investing in an <a href="https://www.motilaloswalmf.com/index-fund" target="_blank" data-type="URL" data-id="https://www.motilaloswalmf.com/index-fund" rel="noreferrer noopener">index fund</a>, investors can benefit from the market&#8217;s long-term performance while avoiding the risks and costs associated with active fund management. Additionally, index funds are typically low-cost and offer the advantage of automatic diversification, which helps to reduce the overall risk in an investment portfolio.



<h2>Pros and Cons of Index Funds</h2>



<h3>Pros</h3>



<ol type="1"><li>Low Costs:</li></ol>



Index funds typically have low management fees and expenses compared to actively managed funds, which can result in higher returns over the long run.



<ol type="1" start="2"><li>Diversification:</li></ol>



Index funds provide automatic diversification, as they hold many stocks, which helps reduce the portfolio&#8217;s overall risk.



<ol type="1" start="3"><li>Ease of Investment:</li></ol>



Investing in index funds is simple, as they follow a set benchmark and do not require extensive research or analysis.



<ol type="1" start="4"><li>Market Exposure:</li></ol>



Index funds provide investors with exposure to a broad market rather than just a few individual stocks, which can result in less volatility and better long-term performance.



<h3>Cons</h3>



<ol type="1"><li>Limited Potential for Outperformance:</li></ol>



Since index funds simply track the market, they may not provide the potential for outperformance compared to actively managed funds.



<ol type="1" start="2"><li>Lack of Active Management:</li></ol>



Index funds do not have a fund manager who makes investment decisions based on market conditions or individual security analysis, which can result in missed opportunities.



<ol type="1" start="3"><li>Market Risk:</li></ol>



Index funds are subject to market risk like any other investment and can experience losses if the market declines.



<ol type="1" start="4"><li>Inflexibility:</li></ol>



Once invested, index funds may not allow for changes in the portfolio mix or changes in investment strategy, which can limit the ability to take advantage of market opportunities.



<ol type="1" start="5"><li>Index Dependence:</li></ol>



Index funds depend on the benchmark index&#8217;s performance, and changes in the index composition or methodology can affect the fund&#8217;s performance.



<h2>Who should invest in Index Funds?</h2>



<ol type="1"><li>Index funds can be a good investment option for beginner investors looking for a simple and straightforward way to invest in the markets. Since index funds require minimal research and analysis, one only needs to investigate a little before investing.</li></ol>



<ol type="1" start="2"><li>It is also an ideal choice for people looking to invest for the long term to save up for retirement or other major financial goals.</li></ol>



<ol type="1" start="3"><li>Moreover, index funds have low management fees and are economical when it comes to other expense ratios. Hence, if you are a cost-conscious investor, index funds might be the right pick.</li></ol>



<ol type="1" start="4"><li>Also, if you are a diversification-focused investor, index funds will provide you with automatic diversification, which helps reduce the overall risk of your portfolio.</li></ol>



<ol type="1" start="5"><li>Index funds focus on the long term without worrying about outperforming the benchmark, making it the ideal investment choice for investors with long-term financial goals.</li></ol>



<ol type="1" start="6"><li>Index funds provide exposure to a broad market. They can provide decent returns with less volatility compared to actively managed funds, making them a good choice for investors with a moderate risk tolerance.</li></ol>



Remember that while index funds can be a good investment option for many individuals, they still carry market risk, and it is important to consider your overall financial goals and risk tolerance before making any investment decisions.



<h2>Who should not invest in Index Funds?</h2>



Index funds may not be the best investment option for everyone, and some individuals who may want to consider alternative options include



<ol type="1"><li>Short-term Investors: Index funds are designed for <a href="https://www.motilaloswalmf.com/investor-education/blog/benefits-of-long-term-investing-in-mutual-funds/" target="_blank" data-type="URL" data-id="https://www.motilaloswalmf.com/investor-education/blog/benefits-of-long-term-investing-in-mutual-funds/" rel="noreferrer noopener">long-term investments</a> and may not be suitable for individuals seeking short-term gains.</li></ol>



<ol type="1" start="2"><li>Active Traders: Index funds do not provide the potential for outperformance compared to actively managed funds and may not be suitable for individuals who enjoy actively managing their investments.</li></ol>



<ol type="1" start="3"><li>Investors Seeking High-risk/reward Opportunities: Index funds provide exposure to a broad market but do not provide the potential for high returns compared to more high-risk investments.</li></ol>



<ol type="1" start="4"><li>Investors with a Low-Risk Tolerance: While index funds provide a more diversified investment option compared to individual stocks, they still carry market risk and may not be suitable for individuals with a low-risk tolerance.</li></ol>



<ol type="1" start="5"><li>Investors with Specific Investment Goals: Index funds provide exposure to a broad market but do not allow for changes in the portfolio mix or investment strategy, which may not be suitable for individuals with specific investment goals.</li></ol>



<h2>Frequently Asked Questions</h2>



<ol type="1"><li>What is the difference between index funds and actively managed funds?</li></ol>



Let’s start with understanding active funds first. Actively managed funds are managed by a professional fund manager who actively buys and sells securities to provide competitive returns. These funds are usually intended to outperform the market indices. Whereas, index funds are passively managed, meaning they follow a set market index like Sensex or <a href="https://www.motilaloswalmf.com/mutual-funds/motilal-oswal-nifty-50-index-fund" target="_blank" data-type="URL" data-id="https://www.motilaloswalmf.com/mutual-funds/motilal-oswal-nifty-50-index-fund" rel="noreferrer noopener">Nifty 50</a>. They do not require active management. For instance, Motilal Oswal Nifty 50 index fund invests in all 50 companies listed in the index in the proportion of their respective market size.&nbsp;



<ul><li>What are the different types of Index Funds?</li></ul>



There are 8 types of Index Funds:&nbsp;



<ul type="1"><li>Broad Market Index Funds: It tracks the major segment of the entire stock market, giving you exposure to a variety of stocks and market caps. Eg: <a href="https://www.motilaloswalmf.com/mutual-funds/motilal-oswal-nifty-500-index-fund" target="_blank" data-type="URL" data-id="https://www.motilaloswalmf.com/mutual-funds/motilal-oswal-nifty-500-index-fund" rel="noreferrer noopener">Motilal Oswal Nifty 500 Fund</a>, <a href="https://www.motilaloswalmf.com/etf" target="_blank" data-type="URL" data-id="https://www.motilaloswalmf.com/etf" rel="noreferrer noopener">Russell 3000 ETF</a>, etc.&nbsp;</li></ul>



<ul><li>Market Capitalization Index Fund: These index funds track the indices based on market capitalization of underlying stocks. Meaning, large companies take up a larger portion of the funds assets and small companies take up a smaller portion of the funds assets. Eg: Sensex, <a href="https://www.motilaloswalmf.com/mutual-funds/motilal-oswal-nifty-50-index-fund" target="_blank" data-type="URL" data-id="https://www.motilaloswalmf.com/mutual-funds/motilal-oswal-nifty-50-index-fund" rel="noreferrer noopener">Nifty 50</a>, Nifty Next 50, etc.&nbsp;</li></ul>



<ul><li>Equal Weight Index Fund: Unlike market capitalization index funds, these funds give equal weightage to all stocks of the index regardless of their market cap.&nbsp;</li></ul>



<ul><li>Smart Beta Index Funds: These index funds use factors like size, value, and quality of stocks in the index to create an index mutual fund.&nbsp;</li></ul>



<ul><li>Sector-Based Index Funds: These funds or <a href="https://www.motilaloswalmf.com/etf" target="_blank" data-type="URL" data-id="https://www.motilaloswalmf.com/etf" rel="noreferrer noopener">ETFs </a>are sector specific and only invest in a targeted sector like Finance, IT, Healthcare, Infrastructure, etc.&nbsp;</li></ul>



<ul><li>International Index Funds: International index funds track funds of indices of foreign stock exchanges, like <a href="https://www.motilaloswalmf.com/mutual-funds/motilal-oswal-nasdaq-100-fund-of-fund" target="_blank" data-type="URL" data-id="https://www.motilaloswalmf.com/mutual-funds/motilal-oswal-nasdaq-100-fund-of-fund" rel="noreferrer noopener">NASDAQ</a> and <a href="https://www.motilaloswalmf.com/mutual-funds/motilal-oswal-s&amp;p-500-index-fund" target="_blank" data-type="URL" data-id="https://www.motilaloswalmf.com/mutual-funds/motilal-oswal-s&amp;p-500-index-fund" rel="noreferrer noopener">S&amp;P 500</a>.&nbsp;&nbsp;</li></ul>



<ul><li>Debt Index Funds: Debt-based index funds invest in fixed income instruments like bonds, corporate debt securities, etc.&nbsp;</li></ul>



<ul><li>Custom Index Funds: Custom index funds allow advisories to formulate their own personalized fund, but under passive investing frameworks.&nbsp;</li></ul>



<ul><li>How many index funds should I invest in?</li></ul>



The number of index funds you should invest in totally depends on your investment goals, risk tolerance, and overall financial situation. Generally, a diversified portfolio of 2 to 4 index funds is a good starting point, with the specific number ultimately depending on your unique financial situation.



<ul><li>Are index funds only for long-term investors?</li></ul>



Index funds can be suitable for both short and long-term investors. However, these funds are recommended more for long-term investors. This is because index funds tend to mirror the stock market indices, often known to provide steady returns over the long term.&nbsp;



<ul><li>What is the minimum amount needed to invest in index funds?</li></ul>



You can start investing in index funds for as low as ₹500.&nbsp;



<ul><li>Can I build a diversified portfolio using only index funds?</li></ul>



As a beginner, it is okay to start by investing in index funds alone. However, since <a href="https://www.motilaloswalmf.com/index-fund" target="_blank" data-type="URL" data-id="https://www.motilaloswalmf.com/index-fund" rel="noreferrer noopener">index funds</a> invest in a single market index, they might not provide you with asset diversification. In order to add healthy diversification to your portfolio, one can add other low-correlation assets like bonds and gold to their portfolio.



Disclaimer:This publication is pursuant to Investor Education and Awareness Initiative by Motilal Oswal Mutual Fund. This shall not be construed as offer to invest in any financial product or Scheme. The objective of this publication is restricted to informational purposes only. All investors have to go through a one-time KYC (Know Your Customer) process. For further details on KYC, Change of address, phone number, bank details etc. list of SEBI registered Mutual Funds and redressal of complaints including details about SEBI SCORES portal, visit link <a href="https://www.motilaloswalmf.com/New_Page/KYC-and-Redressal-of-Complaints/9">https://www.motilaloswalmf.com//New_Page/KYC-and-Redressal-of-Complaints/9</a>. SMART ODR portal, visit link <a href="https://smartodr.in/login" target="_blank" rel="noopener">https://smartodr.in/login</a>.&nbsp; Investors should invest only with SEBI registered Mutual Funds details of which can be verified on the SEBI website under “SEBI Intermediaries/ Market Infrastructure Institutions.



This blog 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 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 the blog 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. Mutual Funds are subject to market risk. Read the offer documents before investing. Readers shall be fully responsible/liable for any investment decision taken on the basis of this article.



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

When approaching the stock market, most people dream of making big profits. Getting rich fast, and with minimal effort — that’s the dream. However, in order to build a good investment portfolio, what you need is<a href="https://www.valueresearchonline.com/stories/31853/consistency-is-key/" target="_blank" rel="noopener"> </a><a href="https://www.valueresearchonline.com/stories/31853/consistency-is-key/" target="_blank" rel="noopener">consistency</a> and<a href="https://www.motilaloswal.com/blog-details/How-to-make-the-power-of-compounding-work-for-you/1298" target="_blank" rel="noopener"> </a><a href="https://www.motilaloswal.com/blog-details/How-to-make-the-power-of-compounding-work-for-you/1298" target="_blank" rel="noopener">compounding</a> — not crazy money schemes.



We need to build a savings habit and we need to invest those savings consistently to generate passive income. A diversified portfolio of different index funds can provide these benefits.



<h3>What are index funds</h3>



As the name suggests, <a href="https://www.motilaloswalmf.com/index-fund" target="_blank" data-type="URL" data-id="https://www.motilaloswalmf.com/index-fund" rel="noreferrer noopener">index funds</a> invest in a particular market index. For example, if you select a <a href="https://www.motilaloswalmf.com/mutual-funds/motilal-oswal-nifty-50-index-fund" target="_blank" data-type="URL" data-id="https://www.motilaloswalmf.com/mutual-funds/motilal-oswal-nifty-50-index-fund" rel="noreferrer noopener">Nifty50 index fund</a>, the portfolio will mirror the components of the Nifty50 stock index. You can select different types of index funds across different sectors.



An important characteristic of <a href="https://www.motilaloswalmf.com/index-fund" target="_blank" data-type="URL" data-id="https://www.motilaloswalmf.com/index-fund" rel="noreferrer noopener">index funds</a> is the passive nature of investing. Normally, in active <a href="https://www.motilaloswalmf.com/mutual-funds" target="_blank" data-type="URL" data-id="https://www.motilaloswalmf.com/mutual-funds" rel="noreferrer noopener">mutual fund </a>schemes, the fund manager plays a role in selecting the stocks to invest in. The portfolio is adjusted according to the market conditions.



In index funds, however, the portfolio is the same as the index it mirrors. If the components of the index are changed, the portfolio is adjusted to reflect those changes. But apart from that, the fund manager has no involvement in the selection of stocks.



<h3>What to know before investing in index funds</h3>



Index funds are, at the heart of it, stock investments. This means, there are certain prerequisites that you should know about before you start investing.



The first thing to remember is that index funds are meant for a<a href="https://economictimes.indiatimes.com/industry/banking/finance/banking/index-mutual-funds-everything-you-need-to-know-before-investing/articleshow/94831370.cms" target="_blank" rel="noopener"> </a><a href="https://economictimes.indiatimes.com/industry/banking/finance/banking/index-mutual-funds-everything-you-need-to-know-before-investing/articleshow/94831370.cms" target="_blank" rel="noopener">long-term investment horizon</a>. As with all other equity investments, it is recommended to hold the asset for at least 10-15 years. This ensures that the effects of the short-term volatilities in the stock market are nullified.



Please note that index funds may even generate negative returns in the short term. It is only if you stay invested for a decade, at least, that you are likely to see the <a href="https://www.motilaloswalmf.com/tools/compounding-magic" target="_blank" data-type="URL" data-id="https://www.motilaloswalmf.com/tools/compounding-magic" rel="noreferrer noopener">effects of compounding</a>.



The other thing that you should keep in mind is that <a href="https://www.motilaloswalmf.com/index-fund" target="_blank" data-type="URL" data-id="https://www.motilaloswalmf.com/index-fund" rel="noreferrer noopener">index funds</a> offer average market returns. This could be lower than active funds who generally try to beat the market average returns.



So if you’re looking for aggressive short-term growth, index funds are probably not right for you. But, if you’re looking to build a stable portfolio over time with passive investments, index funds are the answer.



<h3>Who can invest</h3>



Anyone who has a demat account can invest in index funds in India. If you don’t have a demat account, you can open one with any brokerage platform.



In fact, you can open a<a href="https://www.motilaloswal.com/blog-details/What-is-the-procedure-to-Open-a-Demat-Account/1147" target="_blank" rel="noopener"> </a><a href="https://www.motilaloswal.com/blog-details/What-is-the-procedure-to-Open-a-Demat-Account/1147" target="_blank" rel="noopener">demat account</a> online within a few minutes. The KYC (Know Your Customer) requirements can be completed online. You will require the following documents:



<ol type="1"><li>Application form</li><li>PAN card</li><li>Photograph</li><li>Identity proof</li><li>Address proof</li></ol>



<h3>How can you invest</h3>



Starting your investment journey can be a daunting step. There is a lot to think about, and you open yourself up to potential risk. If you think you might require some help, you can consult with a financial advisor.



The advantage of consulting with an advisor is that you get to adopt a structured approach right from the beginning of your investment journey. You create a <a href="https://www.motilaloswalmf.com/goalbase/" target="_blank" data-type="URL" data-id="https://www.motilaloswalmf.com/goalbase/" rel="noreferrer noopener">financial plan</a>, set down your <a href="https://www.motilaloswalmf.com/goalbase/" target="_blank" data-type="URL" data-id="https://www.motilaloswalmf.com/goalbase/" rel="noreferrer noopener">investment goals </a>and then select your funds with a clear objective in mind.



<h3>How to select the right index fund</h3>



We’ve discussed why investing in<a href="https://www.motilaloswalmf.com/index-fund" target="_blank" data-type="URL" data-id="https://www.motilaloswalmf.com/index-fund" rel="noreferrer noopener"> index funds</a> can be a good idea. But which index fund should you invest in?



Choosing an index fund is not as simple as choosing an index to mirror. There are a lot of different factors that come into play.



<h3>Expense Ratio</h3>



The expense ratio is the amount charged by the fund house for investing your money. This includes the management fees, plus any marketing and administrative expenses that the fund house incurs.



Now, the expense ratio for index funds is lower than other actively managed funds. There is a simple reason — because index funds are <a href="https://www.motilaloswalmf.com/mutual-funds?key=indexfunds" target="_blank" data-type="URL" data-id="https://www.motilaloswalmf.com/mutual-funds?key=indexfunds" rel="noreferrer noopener">passive funds</a>, they don’t require a lot of attention from the fund managers. This is why the management fees component of the expense ratio is much lower.



In spite of that fact, there is a range of expense ratios that can be found among different index funds.



When you make your choice, make sure you’re comfortable with the expense ratio involved.



<h3>Assets Under Management</h3>



AUM or assets under management refers to the total fund amount. A higher AUM indicates that the fund is popular and has attracted large investments from numerous investors.



If you’re unsure which index fund to invest in, you can go for one with a large AUM. This is generally the safer option and signals the market’s overall confidence in that fund.



<h3>Fund Manager</h3>



The fund manager’s role is not as important in the case of index funds as it would be in the case of more actively managed funds. But you should still consider it.



Look at which funds they have managed in the past, and what the historical performance has been like. You can also check whether the fund manager’s investment philosophy and principles match your own.



<h3>Past Performance</h3>



The past performance of the fund indicates what the average growth rate has been like. It will help you estimate the kind of returns you can expect.



Please keep in mind that just because a fund has performed well in the past, it does not mean it will do so again in the future. But it is a valid criterion for comparing different index funds.



<h3>Which platform is best for investing in index funds</h3>



Index funds are offered by all online mutual fund distribution platforms. You can either opt for an aggregator platform, or you can invest directly through the AMC’s website. If you’ve enlisted the services of an investment advisor, you can also invest directly through them.



Please keep in mind that if you decide to invest directly through the AMC’s website, you’ll only be able to access that AMC’s schemes. On the other hand, through a distribution platform, you’ll be able to access the funds from the different AMCs.



Disclaimer: This publication is pursuant to Investor Education and Awareness Initiative by Motilal Oswal Mutual Fund. This shall not be construed as offer to invest in any financial product or Scheme. The objective of this publication is restricted to informational purposes only. All investors have to go through a one-time KYC (Know Your Customer) process. For further details on KYC, Change of address, phone number, bank details etc. list of SEBI registered Mutual Funds and redressal of complaints including details about SEBI SCORES portal, visit link <a href="https://www.motilaloswalmf.com/New_Page/KYC-and-Redressal-of-Complaints/9">https://www.motilaloswalmf.com//New_Page/KYC-and-Redressal-of-Complaints/9</a>. SMART ODR portal, visit link <a href="https://smartodr.in/login" target="_blank" rel="noopener">https://smartodr.in/login</a>.&nbsp; Investors should invest only with SEBI registered Mutual Funds details of which can be verified on the SEBI website under “SEBI Intermediaries/ Market Infrastructure Institutions.



This blog 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 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 the blog 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. Mutual Funds are subject to market risk. Read the offer documents before investing. Readers shall be fully responsible/liable for any investment decision taken on the basis of this article.



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

There are<a href="https://www.motilaloswal.com/blog-details/how-companies-are-listed-in-indian-stock-market/20955" target="_blank" rel="noopener"> </a><a href="https://www.motilaloswal.com/blog-details/how-companies-are-listed-in-indian-stock-market/20955" target="_blank" rel="noopener">thousands</a> of companies in the Indian stock market. There are about 2,113 companies listed on the NSE and 5,311 companies listed on the BSE. This means, whether you want to invest in large and midcap funds or small-cap funds, whether you want to opt for mutual funds or even direct equity investments, you are spoilt for choice.



As you can imagine, it can be quite difficult to analyse over 5,000 companies at once. It is much easier to divide them into groups and then do the analysis.



In the stock market, we generally classify companies on the basis of their market size or market capitalisation. Accordingly, there are three types of companies — large-cap companies, mid-cap companies and small-cap companies.



In this article, we will understand the difference between these categories. Let’s get started then, shall we?



First things first. Let’s understand what market capitalisation means and how it is calculated.



<h2 class="has-medium-font-size">What is market capitalisation</h2>



This is a measure of the value of the company. We can calculate the market capitalisation of a company by using the following<a href="https://www.kotaksecurities.com/ksweb/share-market/difference-between-large-small-mid-cap-in-share-market" target="_blank" rel="noopener"> </a><a href="https://www.kotaksecurities.com/ksweb/share-market/difference-between-large-small-mid-cap-in-share-market" target="_blank" rel="noopener">formula</a>.



Market capitalisation = Market price of each share * Total number of outstanding shares



For example, if the share price of company A is ₹100, and there are 1 lakh outstanding shares in the market, then the market capitalisation, according to the formula above is ₹1 crore.



The purpose of calculating the market cap of a company is to see how much it would cost to buy the company in the open market. Now, of course, this isn’t the only method of valuing a company. This is just one of the easiest and one of the most readily available.



On the basis of market capitalisation, we can divide companies into large-cap, mid-cap and small-cap.



<h2 class="has-medium-font-size">What are large-cap companies</h2>



Large-cap companies are those that have a market capitalisation of over ₹20,000 crores. These are the 100 largest companies in India, the biggest and the most stable names in the stock market. You can expect to find giants like TCS, Reliance and others in this list.



Now, large-cap companies are known for their stability and their consistency. They have climbed a steep slope to get to the position they have today, and they have already optimised their operational framework.



This means you will not get very aggressive growth. But on the flip side, there is a lower chance of the company going kaput!



You can either invest directly in large-cap stocks or you can opt for a mutual fund.



The advantage of the latter is that you can add some diversification and enjoy a higher growth rate. For example, large and midcap funds invest the corpus amount in large-cap stocks and mid-cap stocks. You will thus get the stability of large-cap stocks and you may also get higher returns.



<h2 class="has-medium-font-size">What are mid-cap companies</h2>



Mid-cap companies generally have a market capitalisation between ₹5,000 crores and ₹20,000 crores. The next 150 companies in terms of size, after the large-cap stocks, fall in this range.



As you can imagine, mid-cap stocks grow faster than large-cap stocks. They are in their adolescence, if you will, and are coming into their own potential. These make for very good investments, especially if you stay invested for the long term.



But, these are also more risky than large-cap stocks. As these companies are still growing, their operational procedures have not yet been fully optimised. In normal circumstances, there may not be any issues. However, in special situations, like COVID-19, for instance, mid-cap stocks may be affected.



The selection of the stock is very important when it comes to mid-cap companies. Direct equity investments in this case will require quite a bit of active research and analysis. An easier option is to opt for a midcap fund.



Midcap funds generally invest about 65% of their corpus in midcap companies. The remaining 35% can be in large-cap companies or others. As these funds are professionally managed, there is an entire team for selecting the portfolio. In other words, you can delegate the entire task of selecting and managing the portfolio, and simply enjoy the benefits.



<h2 class="has-medium-font-size">What are small-cap companies</h2>



These are the fledglings in the stock market. Small-cap companies typically have a market capitalisation that is less than ₹5,000 crores.



These companies can show aggressive and sometimes even exponential growth. They are discovering themselves and can generate very high returns for the investors. But, small-cap stocks are also the most risky.



The probability of success is not very high, in this case. A lot of small-cap companies can go out of business if they encounter tough market conditions. They don’t have much surplus capital and if things don’t go according to plan, they’ll be forced to shut their doors.



But, if you can identify good small-cap companies, you can essentially end up with a multi-bagger in your hands. It’ll be like investing in Reliance before it became a giant.



Small-cap funds are an easy method of investing in small-cap stocks. Many a time, investors add some proportion of small-cap funds to their portfolio for aggressive growth.



<h2 class="has-medium-font-size">How can you invest</h2>



You can invest in two ways — either directly or through mutual funds.



With large-cap stocks, you can go either way. But with mid-cap and small-cap stocks, it is easier to invest through a mutual fund rather than directly. This is for the obvious reason of the risk factor.



Because large-caps have a lower risk element, it is easier to choose individual stocks to invest in. But with mid-caps and small-caps, choosing individual stocks is a long and complicated process. It is much easier to go with a midcap fund or a small-cap fund.



<h2 class="has-medium-font-size">Differences between small-cap, mid-cap and large-cap</h2>



<h3 class="has-normal-font-size">Volatility</h3>



We keep seeing the prices in the stock market fluctuating like crazy, don’t we? One day the Nifty is up, the next day there is a crash. A different set of companies can do well on the different days of the week.



In other words, a lot is up in the air in the stock market. It is hard to predict what a particular stock will do on a particular day. This is especially true for small-caps.



If we consider volatility to be a spectrum, then large-cap stocks will be at the lower end and small-cap stocks will be at the higher end. Mid-caps, as expected, enjoy a median position. This behaviour can also be seen through the performance of mutual funds. Large-cap funds and mid-cap funds are characterised by much lower volatility than small-cap funds.



If you want to hit the sweet spot, midcap funds are the ideal investment option.



<h3 class="has-normal-font-size">Liquidity</h3>



This refers to the ease with which you can enter and exit your investment position. Highly liquid stocks are those that can be bought and sold very easily. They are traded in high volumes, and if you place any orders, those are generally executed instantly.



Now, liquidity arises when there are a lot of shares of that company available in the market. This is the highest for large-cap stocks, followed by mid-caps and then small-caps. Thus, the liquidity factor is also highest for large-cap stocks and lowest for mid-caps.



If you invest through a mutual fund, you don’t really need to worry about this factor. A midcap fund, for instance, will do the buying and selling of shares directly. But, if you invest in individual stocks, the liquidity will dictate how easily you can sell the investment.



<h3 class="has-normal-font-size">Growth potential</h3>



This is highest for small-caps and lowest for large-caps. Midcaps, as usual, enjoy a middle ground.



Please note, however, that just because large-caps have lower growth potential, it doesn’t mean they are bad investment options. On the contrary, large-caps are one of the best investment options because they bring stability and security to your portfolio.



Small-cap stocks grow faster because the companies are still adding to their potential and are increasing their proactive capacity every day. Mid-caps, too, have good growth potential.



<h3 class="has-normal-font-size">Risk</h3>



Large-cap stocks have the lowest risk exposure, and small-cap stocks have the highest. Midcaps are in the middle. This means if you make an investment in a company or mutual fund, will that investment grow over time or will it fizzle and die out into oblivion?



The chance of that happening is higher with a small-cap, hence the associated risk.



If you invest in mutual funds, the fund manager themselves employ various risk management techniques to ensure that your money is safe. It is for this reason that midcap funds are safer than investing in individual mid-cap stocks.



<h2 class="has-medium-font-size">Conclusion</h2>



It is good to have some element of large-cap and mid-cap funds in your portfolio. Midcap funds in particular, because they’re centrally placed, they provide the best of both worlds. You get to enjoy some element of high growth along with a lower risk exposure than small cap funds.



Please make sure, however, that you go through the objectives of the midcap fund scheme and ensure that it mirrors your own investment goals before investing.



Disclaimer: This publication is pursuant to Investor Education and Awareness Initiative by Motilal Oswal Mutual Fund. This shall not be construed as offer to invest in any financial product or Scheme. The objective of this publication is restricted to informational purposes only. All investors have to go through a one-time KYC (Know Your Customer) process. For further details on KYC, Change of address, phone number, bank details etc. list of SEBI registered Mutual Funds and redressal of complaints including details about SEBI SCORES portal, visit link <a href="https://www.motilaloswalmf.com/New_Page/KYC-and-Redressal-of-Complaints/9">https://www.motilaloswalmf.com//New_Page/KYC-and-Redressal-of-Complaints/9</a>. SMART ODR portal, visit link <a href="https://smartodr.in/login" target="_blank" rel="noopener">https://smartodr.in/login</a>.&nbsp; Investors should invest only with SEBI registered Mutual Funds details of which can be verified on the SEBI website under “SEBI Intermediaries/ Market Infrastructure Institutions.



This blog 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 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 the blog 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. Mutual Funds are subject to market risk. Read the offer documents before investing. Readers shall be fully responsible/liable for any investment decision taken on the basis of this article.



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

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