Last Updated on March 9, 2019
This is a review of Motilal Oswal Multicap 35 Fund. This is a multicap fund that seeks to invest in no more than 35 stocks across market cap and sectors. Thanks to its distributor friendly approach and transfer from its PMS arm, the AUM of this less-than-five year old has quickly swelled to 13,000 plus crores. About 39% of it is in the direct plan (Source AMFI). Let us a take a closer look, not only at Motilal Oswal Multicap 35 Fund, but also the approach of the AMC and its investors.
To be frank, I think Motilal Oswal AMC has a rather brash, bravado-ridden approach to pushing its fund. It has to quickly mature in order to retain AUM, because its investors will not. Have a look at the scheme presentation for this fund.
The impression created – whether knowingly or unknowingly – is that the AMC can pick the “right stocks” and once it does (buying right) it will hold (sit tight). I have seen no other AMC stress so much on the “right stocks” with past returns prominently displayed.
They keep talking about “high conviction” picks and the need to keep the number of stocks in the portfolio low. This means that they would take (relatively) concentrated bets on business that have not yet taken off, but are expected to.
There is nothing wrong with this approach. The trouble is that investors much recognise that buying right is not possible all the time and we will know if we are right or wrong in hindsight. When you take concentrated bets and they go wrong, you will have to exit and start all over again. In the meanwhile the NAV of the fund will take a hit. Neither the AMC or its distributors will highlight this possibility to investors – most of whom are young and immature.
Motilal Oswal Multicap 35 Fund: SIP Performance since inception
Look at that huge fall (aka draw down). Again, this is expected from Multicap 35, but cannot expect investors to be prepared.
Motilal Oswal Multicap 35 Fund: Nifty Next 50 and Nifty 100
Motilal Oswal Multicap 35 Fund is benchmarked to Nifty 500, but I think NIfty Next is an appropriate benchmark. The fund has comfortably beat both since inception. However, there is practically no downside protection. The max drawdown for Nifty 500 during this period is 20% and that for the fund is only 1% less. Nifty NExt 50 has a drawdown of -21%.
If we look at the last three-year returns at the funds Morningstar page, the fund 2% more than BSE 500 although so did the category average. My point is that investors should be mentally prepared for this.
Fingerprint analysis
Here use the Fingerprinting visual Tool for Analyzing Mutual Fund Performance and compare monthly mutual fund and index returns and find out where they fall.
Motilal Oswal Multicap 35 Fund vs NIfty 500 TRI
You can see from the above why investors can get worried while holding this fund. The underperformance months on the higher side. We can check the dates when these occur.
The underperformance is frequent (although not just for this fund).
Motilal Oswal Multicap 35 Fund vs NIfty Next 50 TRI
Again that is decent performance.
Summary
I don’t think there is anything wrong with fund. It is just doing what it say will do. It is the investors mistake to expect this fund to “fall less” than the market. That is not its mandate. As mentioned above, when the fund management restricts the no of stocks it can choose and seeks outperformance based on conviction and concentration things can go wrong.
One can sit right only when one buys right and this cannot happen all the time. SInce some loyal distributor is likely to tag Aashish P Sommaiyaa on twitter to this post, my insignificant two cents to the amc is (1) tone down expectation from all such “focused” funds others the AUM will not “stick” (2) educate investors about the importance of patience.
Investors cannot buy a fund expecting only returns. This is a high-risk, potential high-reward and requires a significant time to perform. So do not choose this unless your needs are over 10 years away. The AMC says it will
endeavour to construct such a portfolio that the product is best suited for medium and long term investment
Please interpret medium term as 10 years.
New investors: If you do not mind a rough ride, then you can consider this fund although IMO you should not. When the going in the markets is good, people talk about how patience is important. When returns evaporate for a few months, then tune changes. Equity may work in the long term but the journey matters.
Existing investors: If you are worried about the fund performance then you should first worry about your investment strategy or the lack thereof. The fund is behaving as it should. You have two choices: either be patient or choose a less volatile fund.
if you want the rainbow, you gotta put up with the rain. – Dolly Parton
We now publish both equity fund and debt fund (+ hybrid fund) screeners each month!
Use our Robo-advisory Excel Template for a start-to-finish financial plan! Now with a new demo video! ⇐ More than 415 investors and advisors use this!
Unlock the secrets of successful financial advisors and entrepreneurs with our new course!
My new book for kids: “Chinchu gets a superpower!” is now available!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Join our courses in exclusive Facebook Groups!
- 550+ members are now part of our new course: How to get people to pay for your skills! (watch 1st lecture for free). Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show how to achieve by showcasing your skills and building a community that trusts you and pays you!
- Goal-based portfolio management! Join 2220+ members and get clarity on how to plan for your goals and achieve the necessary corpus no matter what the market condition is!! Watch the first lecture for free! One-time payment of Rs. 3000 only. No recurring fees! Life-long access to videos (10+ hours content) in an exclusive Facebook Group! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Want to check if the market is overvalued or undervalued? Use our market valuation tool (will work with any index!), or you buy the new Tactical Buy/Sell timing tool!
We publish mutual fund screeners and momentum, low volatility stock screeners .every month.
About the Author
M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. since Aug 2006. Connect with him via Twitter or Linkedin Pattabiraman has co-authored two print-books, You can be rich too with goal-based investing (CNBC TV18) and Gamechanger and seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation to promote unbiased, commission-free investment advice. He conducts free money management sessions for corporates and associations based on money management. Previous engagements include World Bank, RBI, BHEL, Asian Paints, Cognizant, Madras Atomic Power Station, Honeywell, Tamil Nadu Investors Association, IIST Alumni Association. For speaking engagements, write to pattu [at] freefincal [dot] comAbout freefincal & its content policy Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on developments in mutual funds, stocks, investing, retirement and personal finance. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than one million readers a year (2.5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified from credible and knowledgeable sources before publication. Freefincal does not publish any paid articles, promotions, PR, satire or opinions without data. All opinions presented will only be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
- Twitter @freefincal
- Subscribe to our Youtube Videos
- Posts feed via Feedburner.
Our publications
You Can Be Rich Too with Goal-Based Investing
Published by CNBC TV18, this book is meant to help you ask the right questions, seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now. It is also available in Kindle format.Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want
This book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.Your Ultimate Guide to Travel
This is an in-depth dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, how travelling slowly is better financially and psychologically with links to the web pages and hand-holding at every step. Get the pdf for Rs 199 (instant download)Free android apps
- All calculators from our book, “You can be Rich Too” are now available on Google Play!
- Install the Financial Freedom App! (Google Play Store)
- Install Freefincal Retirement Planner App! (Google Play Store)
- Find out if you have enough to say "goodbye" to your employer (Google Play Store)