Motilal Oswal Nifty Microcap 250 Index Fund Offers Diversification, Growth Potential; Should You Consider It?

Motilal Oswal AMC (MOAMC) has announced the launch of Motilal Oswal Nifty Microcap 250 Index Fund, dubbed India’s only passive fund offering exposure to microcap stocks.  

The new fund offer (NFO) runs from June 15 to June 19, 2023. The fund gives investors an opportunity to tap the microcap stocks’ growth potential.  

This open-ended fund will track the total returns of the Nifty Microcap 250 Index.  

Commenting on the fund, Navin Agarwal, MD & CEO of Motilal Oswal AMC, in a press release, said the fund offers investors “a natural extension of the Motilal Oswal Nifty 500 Index Fund, complementing our existing range of broad-based index funds.”

The Nifty Microcap 250 Index

The Nifty Microcap 250 Index is designed to measure the performance of India’s top 250 companies, excluding those already present in the Nifty 500 constituents.  

Motilal Oswal said the index is well-diversified, with the top 10 holdings accounting for only 11 per cent against 59 per cent in the Nifty 50 Index.  

Further, it provides exposure to sectors like industrials, consumer discretionary, commodities, and healthcare, usually underweight in broad-based market indices.

Data provided by Motilal Oswal show that over the last three years, the Nifty Microcap 250 Index delivered a 58 per cent return annually.  

However, despite microcaps’ strong performance potential, they may also witness “higher volatility and extended periods of underperformance to broad-based market indices”, it said.

Why Invest In Microcaps?

According to Motilal Oswal, microcaps comprise around 3 per cent of the total listed stocks’ market capitalization, with distinct characteristics that “make them intriguing investment prospects”. They are also known for agility, niche market focus, and promotor-driven dynamics.

Pratik Oswal, head of passive funds at Motilal Oswal AMC, said, “The segment holds immense potential and unique investment opportunities that have been overlooked by many in the industry.” He added, “Microcaps have a compelling track record of delivering higher returns compared to its counterparts, albeit at a higher risk.”  

Referring to past studies, Motilal Oswal said that small companies tend to outperform their larger counterparts due to illiquidity premium, risk premium, etc., making them an attractive investment proposition.

Scheme Highlights

•  The scheme’s objective is to provide returns that correspond to the total returns of the securities as represented by the Nifty Microcap 250 Index, before expenses, subject to tracking error.  

•  However, there is no guarantee that its objective will be achieved. The fund’s Indicative Base Total Expense Ratio for a regular plan is 1.00 per cent, and for a direct plan is 0.40 per cent.

•  The minimum application amount for the fund is Rs. 500/- and in multiples of Re. 1/- thereafter.  

•  Investors can purchase or redeem units of the scheme through a financial advisor or on its website.