Motilal Oswal MF files for Nasdaq Index Fund that will invest in its own ETFMotilal Oswal AMC has filed for a fund of fund tracking the NASDAQ, one of America’s major indices. The NASDAQ is heavily weighted towards technology companies like Apple, Alphabet (Google), Facebook and Amazon.

The fund is christened Motilal Oswal Nasdaq 100 Fund of Fund. The AMC already has a prominent ETF (Exchange Traded Fund) which tracks the NASDAQ Index, called the Motilal Oswal Nasdaq 100. However, investors need a trading and demat account to buy the ETF. The ETF also suffers from poor liquidity, making it hard to buy and sell large numbers of units.

The proposed ‘Fund-of-Funds’ or FoF will invest almost its entire corpus in another fund – the Motilal Oswal Nasdaq 100 ETF. Its mandate requires it to invest 95-100% of its assets in the Motilal Oswal Nasdaq 100 ETF. The rest can be invested in money market securities. Motilal Oswal Nasdaq 100 Fund of Fund will be open to all investors who have completed their mutual fund KYC, just like any other mutual fund. You will not need a demat and trading account to invest in it.

The launch of the Motilal Oswal Nasdaq 100 Fund of Fund will also improve liquidity in the underlying ETF. “The FoF could be instrumental in cutting arbitrage between the ETF price and the ETF NAV; by being a ready reservoir to give or take the supply of the ETF. It will be superior to a market maker because there will be no profit motive, hedging or inventory carrying issues,” said Motilal Oswal Mutual Fund CEO Ashish Somaiyya in a tweet.

As of today, 14th September 2018, Motilal Oswal Nasdaq 100 ETF has one-year returns of 41.3%, propelled by a strong performance of US-based technology companies and rupee depreciation. It’s three and five-year returns are equally impressive at 23.2% and 21.5% respectively. However, with an AUM (Assets under Management) of just Rs 96 crore, it has not created wealth for large numbers of investors. This is precisely the lacuna that Motilal Oswal Nasdaq 100 Fund of Fund will remedy.

Ashish Aggarwal, who manages other ETFs like Motilal Oswal Midcap 100 and Motilal Oswal M50 ETF, will manage this fund. The small debt component will be managed by Abhiroop Mukherjee. The role of fund managers is very limited in a passive fund such as Motilal Oswal Nasdaq 100 Fund of Fund.

Tax

As an international Fund-of-Funds, Motilal Oswal Nasdaq 100 Fund of Fund will be taxed like a debt fund. This means that selling it within three years of purchase will incur a tax at your slab rate (which could be as high as 30%). Selling it after this period will lead to taxation at 20% with indexation.

Rationale

Here are some reasons in favour and against

    1. It offers exposure to cutting-edge US-based tech companies like Google, Amazon, Facebook, Netflix and Apple 
    2. Geographical diversification – the portfolio exposure to companies outside India – can be achieved.
    3. Protection from rupee depreciation is another positive. An appreciation could go against as well.
    4. Any big correction in the global technology industry could affect your returns.

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This article is written by RupeeIQ editorial staff.