NFO Analysis: Motilal Oswal Large and Midcap Fund (MOFLM)

Motilal Oswal Mutual Fund is basically an equity dedicated mutual fund AMC (Asset Management Company). Apart from its ultra-short duration fund, all other products in its basket are equity dedicated mutual funds. Continuing the same legacy, they have recently launched an NFO (New Fund Offer) for Motilal Oswal Large and Midcap Fund (MOFLM). This new open-ended equity scheme is open for subscription from September 27, 2019 and closes on October 11, 2019. Here the fund will predominantly invest in both large cap and mid cap stocks to build its portfolio by investing a minimum 35 per cent of the total assets in large cap stocks and minimum 35 per cent of the total assets in mid cap stocks.

Objective:
The investment objective of the scheme is to provide medium to long-term capital appreciation from a portfolio by investing predominantly in Indian equity and equity related securities specifically of large and midcap companies.

Asset Allocation:

Benchmark:
The performance of the scheme will be benchmarked against BSE 200 TRI. Most of the schemes in this category are benchmarked against Nifty Large and Midcap 250 TRI. However, there are 7 schemes which are benchmarked against the same index as Motilal Oswal large and mid-cap fund. So, they are considered to be its true peers. The average 1-year rolling return of the scheme over 5 years of BSE 200 TRI is 12.28 per cent whereas that of Nifty Large and Midcap 250 TRI is 10.75 per cent.

Investment Strategy:
As per stated investment objective, the scheme will follow the strategy of investing in a combined portfolio of equity and equity related instruments including derivatives of large and midcap companies, debt instruments, money market instruments, REITs and InvITs.

The selection process that the fund manager will follow is a bottom-up stock picking. Here the fund managers will identify and invest in shares of businesses run by high quality management that are having sustainable and scalable business models. Thus, the stock selection would be done using QGLP (Quality, Growth, Longevity & Price) as the key evaluation parameters. Apart from this, the businesses should have strong earnings growth prospects and should be available at reasonable valuations.

The fund portfolio would comprise of high conviction stock ideas from different market-capitalization levels or sectors. The portfolio stocks may be potentially concentrated in a few market-capitalization levels or sectors which are expected to do well and have lower downside risk.

Fund Manager:
The scheme will be managed by Aditya Khemani, who also manages Motilal Oswal Long Term Equity Fund (MOFLTE). This fund would also be managed by Abhiroop Mukherjee, who is basically Motilal Oswal’s debt fund manager and is managing Motilal Oswal Ultra Short-Term Fund and Motilal Oswal Liquid Fund along with debt component of Motilal Oswal Midcap 30 Fund, Motilal Oswal Multicap 35 Fund, Motilal Oswal Long Term Equity Fund, Motilal Oswal Dynamic Fund and Motilal Oswal Nasdaq Fund of Funds. Motilal Oswal long term equity fund had AUM of Rs. 1,389 crore at the end of August 2019 and has given a return of 7.70 per cent in the last one year compared to its benchmark that generated 3.41 per cent in the same period.

Our Recommendation
Motilal Oswal is well-known for its equity advisory and is in this business for around 30 years now. They have recently launched some of the funds with passive investment strategy. Also, they are known for its well-run ELSS (Equity Linked Saving Scheme) which works like a multicap fund with a 3-year lock-in period.

The peers of Motilal Oswal Large and Midcap fund on an average hold slightly more than 50 stocks in its portfolio with average turnover ratio being 67 per cent. However, this scheme is said to hold around 20 to 25 stocks in its portfolio. This makes this fund prone to concentration risk. Although its portfolio turnover (with a philosophy of buy right and sit tight) tends to be lower than its peers. This fund can indeed be on the riskier side compared to its peers. So, anyone with aggressive risk profile having medium to long-term investment horizon can consider investing in it.

Although we believe that before investing in any fund you should check if it suits you in terms of your risk and returns. For someone who believes that he needs a large and midcap fund for achieving medium to long-term financial goals which are 5 to 8 years from today, then there are other funds with a longer history to analyze and choose from.