Publish Date:
With the Indian equity market near its lifetime high, upbeat sentiments among investors, and positive market momentum favouring growth style of investing in the broader market segment, Motilal Oswal Mutual Fund has launched the Motilal Oswal Nifty 500 Momentum 50 Index Fund.
This Scheme aims to benefit from the momentum of the top 50 performing stocks in the Nifty 500 Momentum Index. The goal of momentum investing is to capitalise on the tendency of stocks that have been performing well to continue performing well in the future.
During the NFO period, the Scheme is open for subscription from September 4, 2024, to September 18, 2024. Thereafter the scheme re-opens for subscription on September 30, 2024.
Motilal Oswal Nifty 500 Momentum 50 Index Fund is an open-ended fund replicating/tracking the Nifty 500 Momentum 50 Total Return Index. In other words, the returns of the Scheme would correspond to the returns of the Nifty 500 Momentum 50 Total Return Index, subject to tracking error.
Up to 95% to 100% of the Scheme’s total assets will be invested in the constituents of the Nifty 500 Momentum 50 Index.
The Scheme will hold all the securities that comprise of underlying Index in the same proportion as the index subject to tracking error. The expectation is that the Scheme will hold all the securities that comprise of underlying Index in the same proportion as the index subject to tracking error.
The fund manager would monitor the tracking error of the Scheme on an ongoing basis and would seek to minimize tracking error to the maximum extent possible. However, there can be no assurance or guarantee that the Scheme will achieve any particular level of tracking error relative to the performance of the underlying index.
The Scheme may take exposure to equity derivatives (not exceeding 20%) of the index itself or its constituent stocks may be undertaken when equity shares are unavailable, insufficient or for rebalancing in case of corporate actions for a temporary period. Other than for the above purposes, the Scheme will not invest in equity derivatives.
The Scheme would also invest up to 5% of its assets in units of liquid schemes and money market instruments to meet liquidity requirements. Money Market Instruments includes commercial papers, commercial bills, Treasury bills (T-bills), Treasury Bill Repurchases (TREPS), Government securities (G-secs) having an unexpired maturity up to one year, call or notice money, certificate of deposit, bills Rediscounting, usance bills, and any other like instruments as specified by the Reserve Bank of India(RBI)/ Securities and Exchange Board of India (SEBI) from time to time.
Not more than 20% of the net assets of the Scheme may generally be deployed in stock lending, and not more than 5% of the net assets of the Scheme can generally be deployed in Stock Lending to any single counterparty.
The cumulative gross exposure through constituents of the Nifty 500 Momentum 50 Index and units of liquid schemes or money market instruments, derivative positions, other permitted securities/assets and such other securities/assets as may be permitted by the Board from time to time will not exceed 100% of the net assets of the scheme.
The Scheme will not invest in the following:
-
Securitized debt
-
Foreign securities, including ADRs and GDRs
-
REITs and InVITS
-
AT1 and AT2 Bonds
-
Debt instruments having Structured Obligations / Credit Enhancements.
-
Repo in corporate debt and corporate reverse repo
-
Credit Default Swap and shall not engage in short-selling
What Is the Investment Objective?
The investment objective of the scheme is to provide returns that, before expenses, correspond to the total returns of the securities as represented by the Nifty 500 Momentum 50 Total Return Index, subject to tracking error.
However, there can be no assurance or guarantee that the investment objectives of the scheme will be achieved.
What Is the Investment Strategy?
The Motilal Oswal Nifty 500 Momentum 50 Index Fund will follow a passive investment strategy as it seeks to invest in the constituents of Nifty 500 Momentum 50 Total Return Index. The scheme aims to achieve returns equivalent to the benchmark subject to tracking error.
The AMC would monitor the tracking error of the Scheme on an ongoing basis and would seek to minimize tracking error to the maximum extent possible. Under normal market circumstances, such tracking error is not expected to exceed by 2% p.a.
In case of unavoidable circumstances in the nature of force majeure, which are beyond the control of the AMC, the tracking error may exceed 2% and the same will be intimated to the Trustees with corrective actions taken by the AMC, if any.
The scheme would also invest in units of Liquid mutual fund schemes and money market instruments as stated above.
Further, subject to the SEBI regulations as applicable from time to time, the scheme may participate in securities lending.
The performance of Motilal Oswal Nifty 500 Momentum 50 Index Fund will be benchmarked against the Nifty 500 Momentum 50 Total Return Index.
About the Nifty 500 Momentum 50 Index
The Nifty 500 Momentum 50 Index tracks the performance of 50 stocks which are selected based on normalized momentum score from the Nifty 500 index.
The momentum score for each company is determined based on its 6-month and 12-month price return, adjusted for volatility.
The weight of each stock in the index is based on the combination of the stock’s momentum score and its free float market capitalization.
Stocks part of the Nifty 500 index at the time of review are eligible for inclusion in the index. Moreover, stocks that scored low on liquidity parameters are excluded from the index.
The index has a base date of April 1, 2005, with a base value of 1,000. The index is reconstituted semi-annually (June and December).
At present, the top constituents of this index are as under:
Table 1: Top Constituents of the Nifty 500 Momentum 50 Index
(Source: NSE Indexogram Factsheet as of August 2024)
Since its inception on June 4, 2024 (with the base date as April 1, 2005), the Nifty 500 Momentum 50 Index has delivered a compounded annualised price return of 23.8% and a total return (which includes dividends) of 24.9% (as of August 30, 2024).
Over the last one year, the Nifty 500 Momentum 50 Index has clocked a stellar absolute total return of 69.5% as of August 30, 2024, rewarding investors very well.
Graph: Long-term Performance of Nifty 500 Momentum 50 Index
(Source: NSE Indexogram Factsheet as of August 2024)
Particularly after the lows of the COVID-19 momentum investing, has drawn attention-seeking returns.
At the launch of the Motilal Oswal Nifty 500 Momentum 50 Index Fund, here’s what Mr Prateek Agrawal, MD and CEO of Motilal Oswal Asset Management Company Ltd. said,
“Factor investing is relatively new in India, within which momentum investing is growing rapidly. As of Q1 FY25, out of a total AUM of INR 35,954 crore in factor funds, momentum funds hold the largest share at INR 10,353 crore, highlighting the rapid expansion of momentum investing in the country."
Here’s what Pratik Oswal, the Chief of Business said,
“The Nifty 500 Momentum 50 TRI may remain a strong investment option due to its low-cost, rules-based, and transparent approach, its exposure to high-momentum stocks across Large, Mid, and Smallcap segments, and its potential to outperform in upward-trending markets. Since April 2005, the Nifty 500 Momentum 50 TRI has achieved an exceptional 76x growth, focusing on top-performing stocks across these segments.”
Keep in mind, the fundamental principle behind momentum investing is that stocks or other financial assets that have performed well in the past will continue to perform well in the future, while those that have performed poorly will continue to perform poorly.
Momentum investing relies on the hypothesis that financial instruments which have shown an upward or downward price trend will continue to do so for a certain period. This strategy is grounded in behavioural finance, which suggests that investors' psychological biases and market sentiment can drive prices in the short term.
Having said that, the operational performance of a company is also a factor in momentum investing. Technical indicators are used in momentum investing to analyse a security and detect patterns, as well as to measure the intensity of the trend and the degree of price momentum in the market.
Thus, momentum investing tries to ride this wave or momentum of stocks that are doing well and then jump on to the next wave before the first one slows down.
[Read: All You Need to Know About Momentum Mutual Funds]
Who Will Manage Motilal Oswal Nifty 500 Momentum 50 Index Fund?
The equity portion of the Scheme will be managed by Mr Swapnil Mayekar, whereas the debt portion of the portfolio by Mr Rakesh Shetty.
Swapnil has over 13 years of experience in fund management and product development and currently is the Vice President - Fund Manager at Motilal Oswal Asset Management Company Ltd. He has been with the AMC since March 2010.
He holds a master’s degree in commerce (M.Com) and a post-graduate advanced diploma in business administration.
His skillset lies in index investing and Exchange Traded Funds (ETFs). At Motilal Oswal Mutual Fund he manages various index funds and ETFs.
Mr Rakesh Shetty is a commerce graduate (B.Com) and has more than 14 years of overall experience and expertise in trading in equity, debt segment, ETF management, Corporate Treasury and Banking. Before joining Motilal Oswal Asset Management Company Ltd, he worked with a company engaged in Capital Market Business wherein he was in charge of equity and debt ETFs, customised indices, and has also been part of product development. At Motilal Oswal Mutual Fund, Rakesh as Fund Manager – Fixed Income, co-manages a variety of schemes.
How much is the Minimum Investment in Motilal Oswal Nifty 500 Momentum 50 Index Fund?
During the NFO period and ongoing basis, the minimum investment in the Scheme is Rs 500/- and in multiples of Re. 1/- thereafter.
For the Systematic Investment Plan (SIP), the minimum SIP amount for Daily SIP is Rs 100/- and multiple of Re. 1/- thereafter (minimum 30 days instalment). For weekly, fortnightly, and monthly SIP, the minimum is Rs 500/- and multiple of Re. 1/- thereafter and the minimum number of SIP instalments in all these cases is 12. In the case of quarterly SIP, the minimum investment is Rs 1,500/- and multiple of Re. 1/- thereafter (minimum 4 SIP instalments). For annual SIP, the minimum investment is Rs 600 and in multiple of Re. 1/- thereafter (minimum 1 SIP instalment).
Who Should Consider Investing in Motilal Oswal Nifty 500 Momentum 50 Index Fund?
This fund is suitable for investors who are looking for a diversified equity portfolio with a focus on momentum-driven stocks.
The returns would correspond with the performance of the Nifty 500 Momentum 50 Index, subject to a tracking error.
Historically it has been observed that the momentum strategy may work well in the bull and recovery phase of the market and may underperform in the bear phase.
Currently, the Price-to-Equity (P/E) and Price-to-Book Value (P/BV) ratio of the Nifty 500 Momentum 50 Index Fund is at around 31x and 6x, respectively -- which cannot be considered cheap.
One ought to have a very high-risk appetite and a longer investment horizon of at least 5 to 7 years to invest in the Motilal Oswal Nifty 500 Momentum 50 Index Fund.
To know more about the Motilal Oswal Nifty 500 Momentum 50 Index Fund, read the Scheme Information Document and Key Information Memorandum.
Happy Investing!