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Productcrack | New fund offer (NFO)

Productcrack | New fund offer (NFO)
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First Published: Tue, Jan 11 2011. 08 59 PM IST
Updated: Tue, Jan 11 2011. 08 59 PM IST
NAME OF THE FUND
Motilal Oswal Most Shares Midcap 100 ETF
WHAT IS IT ABOUT
It is a mid-cap exchange-traded fund (ETF) from Motilal Oswal Asset Management Co. Ltd. This is the fund house’s second scheme after it launched its large-cap ETF a few months back. The new fund will be benchmarked against CNX Midcap index that consists of top 100 mid-cap companies.
WHAT WORKS
The new fund is India’s first truly mid-cap-oriented ETF. The only other passive fund that comes closest to mid-cap funds is an ETF by Benchmark AMC and an index fund by ICICI Prudential AMC; both of them are benchmarked against Nifty Junior index. Though Nifty Junior consists of 50 most liquid scrips outside the Nifty index (India’s 50 most liquid scrips on the National Stock Exchange), they are not mid-cap companies in its true sense. Nifty Junior companies, too, are fairly large companies that fund managers don’t consider them to be true mid-caps; at best they are considered as those that are waiting to crack the Nifty index. While the market capitalization of the largest scrip in Nifty Junior (Adani Enterprises Ltd) is Rs 67,538.9 crore, the scrip with the largest market capitalization in CNX Midcap (UltraTech Cement Ltd) is Rs 27,278.3 crore. Further, the average market capitalization of Nifty Junior is Rs 15,160 crore while that of CNX Midcap index is Rs 7,685 crore. To that extent, the new Motilal Oswal ETF offers an ideal way to invest in the mid-cap space if you wish to avoid the fund manager’s risk.
WHAT DOESN’T
Since ETFs are listed on the stock exchange, you need to have a demat account to be able to buy the units of this fund. Even though you can buy it from your agent the traditional way by filling a form, you will still require a demat account as units will be allotted in dematerialized form. Watch out the scheme’s tracking error (TE), the difference in its performance from its benchmark index. You’re always better off with a passive fund (index or ETF) with a lower TE. The TE of the fund house’s first offering—an ETF—is 0.41% annualized, so far.
MINT MONEY TAKE
It’s advisable to have mid-caps in your portfolio as part of your asset allocation. Passive funds such as these are good options, especially if you wish to avoid the fund manager’s risk.
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First Published: Tue, Jan 11 2011. 08 59 PM IST