What are your thoughts on Motilal Oswal Nifty 500 Fund?

Since this fund is new of it’s kind, I’d like to know opinions from others so as to reduce my blind spots and make a better informed decision.

To begin with, I’ll list out mine.

  1. Nifty 500 is a better diversified form of equity market than Nifty 50.

  2. Nifty 50 contains mostly old companies. The new emerging ones are better captured in Nifty 500.

  3. AUM is on the lower side. (140.8Cr at time of this writing.)

  4. AMC has good experience in index fund space.

  5. Being an index fund gives it an edge while the market gets more and more efficient.

  6. No fund manager risk, being a passive fund.

The above mentioned are only my personal thoughts. I’m expecting you to share yours. Hopefully this thread should help me, you and several others who visit this thread. :slightly_smiling_face:

I follow what Warren Buffet said in the above quote for the following reasons.

  1. 500 stocks is too diversified for my taste.
  2. I believe in Nifty 50, which is India’s top 50 companies and separately invest in Nifty next 50. By investing in these two ETFs, I have the top 100 companies of India covered. For me this level of diversification is adequate.

please also read an article, the link is given below

It gives you an insight on the weightage given to stocks in motilal oswal 500 fund. It is an interesting read.

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Hi @neha1101 , thanks for your reply. I appreciate it. Though I have some thoughts on the ideas you shared. Please correct me if I’m wrong.

I heard several times that Buffett recommends a low cost S&P 500 index fund to normal people (people who aren’t good/confident with individual stock picking, like me) and not even to invest in his company. (By the way, I’m more of a Ray Dalio fan. :upside_down_face:)

The article you linked is good, I read it. But regarding the weightage, individual contribution of companies after the first 50 might seem very less. But those 450 combined will become something significant. Let me explain it. Nifty 50 captures only 66.8% of the equity market. But the Nifty 500 captures a whopping 96.1%. (source nseindia.com)

Also as new companies get listed, the market capitalization percentage of the top 50 is going to get lower and eventually less attractive from an investment perspective, like DJIA in the USA.

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But those 450 combined will become something significant. Let me explain it. Nifty 50 captures only 66.8% of the equity market. But the Nifty 500 captures a whopping 96.1%. (source nseindia.com)

True, but you should have weightage. It is next to impossible to have the remaining 450 stocks to be a multibagger. The reality is few may become multibagger out of the 450 but if the weight is only 0.5% how much benefit you will get in the ETF or Index fund is the question.

Do a study on Nifty 50 or Sensex Index fund (30 stocks) - which is better?

Again, it is each individual perspective.

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I don’t find MO nifty 500 very interesting is because:

  1. Though it is investing in 500 stocks, the weightages are such that almost 80% of it is made up Nifty 100. So remaining 20% money covers 400 stocks that’s hardly any exposure
  2. Expense ratio for this (being an index fund) is still high. And there are hardly any liquidity in bottom stock so tracking error is going to be high)
  3. I still believe that for Indian market, getting alpha in largecap stocks is difficult. So index investing in large cap (NIfty + Next 50) makes sense. For mid and small cap, liquidity is less and fund managers can generate alpha there. So midcap small cap funds are better choice there.

So I am sticking to only large cap index funds and not such hugely spread out one. Personal view.
Also don’t for a second think of Nifty 500 as Indian version of S&P 500, those are two hugely different index and not comparable at all.

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Hi @Akash_Shah, may I know how Nifty 500 is different from S&P 500 (apart from liquidity shortage towards end)?

Point no 3 (regarding alpha) is only applicable for active funds right?

And in point no 1, I don’t understand why you mentioned 20% is “hardly any exposure”.

Anyway I appreciate you guys for sharing your thoughts. :slightly_smiling_face:

[Update]

Here is a chart that compares performance of Nifty 500 with respect to Nifty 50. i.e. uptrend shows Nifty 500 outperforming Nifty 50 and vice versa.

(To plot it yourself, type =CNX500/NIFTY in TradingView search box)

Happy investing :slightly_smiling_face:

Yes liquidity is major differentiator. USA is about 20+ trillion dollar economy. When you consider it’s top 500 stock, it is still as good as investing in Large Caps.
India on other hand is not even 3 trillion dollar. When you consider it’s top 500, its entire universe

Yes, what I was trying to say is investing in index funds of mid cap and small cap in India is still not very attractive. It makes sense to use active funds there

20% exposure over 400 stocks is hardly any exposure.

This are my views. you can choose to differ.

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@Augustine_Charly found a nice article explaining why it becomes really difficult managing index like Nifty 500 and midcap 250 and so on.

Pattu puts it bluntly as:
“Get rid of the idea that buying a larger slice of the market is different. You do not get 450 additional stocks by buying a Nifty 500 fund instead of a Nifty 50 fund. You get additional tracking error at a higher cost.”

Makes few more points. Thought you might find it intresting:

@Augustine_Charly whats your opinion on Motilal Oswal Nifty Midcap 150 index fund? AUM of 600+crores and age of 2+ years and tracking error is also low

Before asking someone in an old thread, check if that member is active. He is not active for a few months now.

Hi @Dharsha , here are my thoughts (pros & cons) on the fund you asked.

Pros:

  1. Its an index fund (if you are a believer in efficient-market hypothesis)
  2. Largest fund within its category - Midcap index fund
  3. Oldest within its category - Midcap index fund
  4. Expense ratio < 0.5%**
  5. Higher potential return than a large cap index fund

Cons:

  1. AUM < 1,000cr**
  2. Age < 5yr**
  3. Higher potential risk than a large cap index fund

Other aspects that I don’t have much clarity to comment:

  1. Liquidity of the underlying stocks w.r.t. their holding size for efficient rebalancing
  2. Tracking error

** The threshold figures are subjective.

(sorry for the late reply)

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Tracking error is the major concern here

Where can we find that?

https://www.amfiindia.com/research-information/other-data/tracking_errordata

@GB26
He is active and that’s the reason i have asked question here.
BTW what’s your problem here?

He was not active for a few months at that time you asked the question. His last seen was for few months old. After you asked, he logged in, answered your question.

What problem? I don’t have any problem. I was merely mentioning that he was not active.

Of course I was inactive. But I get notified via email whenever I’m @ mentioned.

(I’m pretty sure everyone gets notified like this.)

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Members a lot of times don’t post but log in regularly, and as your last seen was months ago along with last posted time, I thought to mention that.

And, you can select not to be notified too.

What can I gain by doing this, nothing. You replied and gave your answers, all is fine :grinning:

Can’t comment on the size and diversification of MF ie 50 stocks or 500 stocks but Motilal Oswal is one of the worst service provider. It’s my personal experience with them. Almost no Customer support neither over email nor via phone.
And finding 500 quality stocks in Indian market is almost impossible.
Avoid motilal oswal