Motilal oswal N100 FOF – Should you invest or avoid?

MOSL n100 FOF

Motilal Oswal mutual fund house is offering MOTILAL OSWAL NASDAQ 100 FUND OF FUND NFO until 22nd November 2018. In this post I would be analyzing the NFO to decide if I would invest or not.

What is Motilal Oswal N100 FoF and how is it taxed?

Motilal Oswal N100 FOF is a mutual fund that would invest only in N100 ETF. N100 ETF is an exchange-traded fund by Motilal Oswal that predominantly invests in Nasdaq 100 shares and considers Nasdaq100 as its benchmark.  Since this is a FOF (Fund of fund means a mutual fund that invests in other mutual funds/ETF) it will be considered as debt fund and will be taxed accordingly. Any profit that you make by selling the units within 3 years of purchase you will be paying the income tax as per your slab.  If you are selling the units after 3 years, then the gains will be taxed at 20%+cess post indexation.

N100

Nasdaq 100 is basicallydominated by com/tech companies such as Facebook, alphabet, apple etc., Nearly 67% of portfolio consist of technology and communication companies. Hence it looksmore a concentrated portfolio with sectorial bias. Any slow down in USA technologysector will affect fund performance badly. Hence if you assume it’s a diversifiedfund it’s not as diversified as nifty50.

How did MOFN100 performed in comparison with Nasdaq100?

The below table shows us the performance of nasdaq100 index and MOFN100. The ETF has underperformed in terms of CAGR by around 10% across 1,3, and 5-year duration.  This is primarily due expenses incurred by the fund house and not a major concern.

Role of Rupee

We see a continuous depreciation of rupee which also contributes to higher NAV of N100 ETF. In the below picture lets us look at the returns in USD and INR.

The returns have been decent around 12.32% in USD and 18.65% in INR sinceinception.  However we could see a big gap in CAGR in terms of returns in INR and USD due to weaker rupee. Hence ifrupee becomes stronger it can offset the dollar gains. So as an investor weneed to deal with both N100 and currency fluctuations.

NAV vs Market Price

If you watch the NAV and market price of ETF there has been a constant gap of around 15 to 20%. As per the NFO document, it says “The fund assets are predominantly invested in MOFN100 and valued at the market price of the said units on the exchange. The same may be at a variance to the underlying NAV ofthe fund, due to market expectations, demand supply of the units, etc. To that extent the performance of the scheme shall be at variance with that of the underlying scheme”. This means FOF will purchase at market price and not directlyas per NAV.

What did I Decide?

This fund invests at market price rather than NAV which I could do myself through demat instead of getting FOF by paying another expense.  Even if FOF purchases at NAV I might consider investing only little (5% of my monthly SIP) due to taxation and currency risk.

Tags :#Nasdaq100,  #MotilalOswal #FundofFund

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