Over the weekend, Motilal Oswal AMC has taken a couple of steps that affect investments in its US-based index funds. In this note, we explain what these steps are and how they affect your investments and our own recommendations.
Ban on lumpsum investments
As far as our own recommendations go, our Prime Funds list has the following two index funds. The funds also find place in a few of our Prime Portfolios.
- Motilal Oswal Nasdaq 100 FoF
- Motilal Oswal S&P 500 Index Fund
SEBI rules limit a single mutual fund’s investment in overseas securities. As the above funds’ AUM is closer to such limit, Motilal Oswal AMC has taken the following steps in the two funds above:
- Barred fresh lump sum investments and fresh switch-ins into the funds.
- However, new SIPs (or STPs) of any amount can be set up in these funds as usual.
- Ongoing SIPs/STPs will also continue.
- There are no restrictions on redemptions or switch-outs.
This is effective from January 17, 2022.
What does this mean?
These steps mean that you will not be able to make lump-sum investments in the two Motilal Oswal funds above. You will be able to set up new SIPs. Therefore, if you want to invest in the funds, you will necessarily need to do so through SIPs alone as long as the ban is in place. There is no amount restriction on the SIP.
Your existing investments and SIPs will not be affected and there is no action that you need to take.
The restrictions will matter to you only if you intend to invest afresh via lump-sum in the two index funds. The restrictions do not affect trading in the Motilal Oswal ETFs.
No change in our recommendation
As we understand, the AMC hopes that this ban is temporary for a couple of weeks until it receives approval from SEBI to enhance investment limits.
Therefore, we are not yet withdrawing the funds from Prime Funds. We are not making any changes to the Prime Portfolios where these funds form part of the portfolio.
We will watch to see if the ban is indeed lifted quickly before jumping to changes, in order to avoid unnecessary churn in portfolios or increase in the number of funds you hold, especially as SIPs are still allowed in the funds.
For lumpsum investments
If you still do wish to invest a lump sum in the Nasdaq 100 while the ban in Motilal Oswal Nasdaq 100 is in place, you have two options: you could invest in the ETF if you have a demat account and you’re willing to make an ETF part of your mutual fund portfolio. Or, if you necessarily want a fund, consider Kotak Nasdaq 100 FoF. There is no alternative at this time for the S&P 500 index.
15 thoughts on “No lumpsums in Motilal Oswal’s US index funds – what should you do?”
Now that SIPs have also been paused from motilal nasdaq 100 FoF until further notice. What you recommend should be next plan of action?
As mentioned in the post, you can consider shifting your SIPs to the Kotak Nasdaq 100 or if you want to make lumpsum investments. Otherwise, there’s little you can do as we do not have clarity on when the ban will be lifted. – thanks, Bhavana
I would like to understand why Kotak Nasdaq 100 fell about 5% on Monday, Jan 24 (NAV published on Jan 25). MO Nasdaq 100 fell only about 1% for the same day. Thank you!
ICICI Nasdaq 100 seems to be replicating the index and currency accurately.
Returns vary for various funds depending on their underlying fund or their direct investment or any currency deployment or selling. So it is hard to pin point, unless the fund manager answers. And this is not the first time there is return variation. Returns vary from negative to positive for some. thanks, Vidya
Hi, firstly, many thanks for the quick write up on this. Secondly, it would be great if the PI team could do an updated write-up on all international index funds, to get a perspective on the various alternatives available. There was an earlier write up but of late, there are more newer international index funds. Thanks
Hello Sir, I suppose you mean international ETFs and index funds. There are too many with too little a track record to so such a comparison now. We will wait for these funds to develop record of tracking error and volumes. thanks, Vidya
While looking for alternative funds in the same category, I see that Aditya Birla, ICICI and Kotak (all 3 NASDAQ funds) are all unrated and no prime recommendations on those. Is Kotak NASDAQ 100 FoF still a good alternative to this fund? (Asking in context of the High Growth portfolio). Thanks
YEs you can consider. That is why we have suggested now 🙂 We did not want multiple funds in Prime funds. In the absence of (temporary) availability of our recommended fund, this is the next best option. They appear simialr on consistency, with the limited track record we have, to compare. thanks, Vidya
Thanks for the timely inputs.
Wanted to know the thought process for preferring Kotak NASDAQ compared to ICICI Prudential NASDAQ 100 Index Fund, especially as the Kotak one with FoF has a higher expense ratio compared to ICICI. Tracking error seems to be unavailable for both considering they are new funds.
Regards
The Kotak fund invests in iShares Nasdaq 100 ETF and doesn’t try to track the index on its own. iShares is among the largest ETF players globally. So while the fund itself is new, the underlying ETF is not. – regards, Bhavana
Thanks, this is useful. The expense ratio is 0.17% higher presumably due to it being a smaller asset base (1/5 of Motilal), otherwise, looks pretty much the same.
If kotak funds invests in iShares Nasdaq 100 ETF, that would mean higher expense as there would be an expense for kotak fund as well for for iShares Nasdaq 100 ETF, right? If so, do you still suggest kotak fund over ICICI Prudential NASDAQ 100 Index fund because you are not sure of the tracking error for icici fund?
Also i feel this restriction on lumpsum can be easily managed. Suppose, you planned to invest Rs.2,00,000 in lumpsum. What is to stop you from investing Rs.1,00,000 each month in SIP and then end your SIP in 2 months? Or am i over-looking any SIP rules?
Expense ratio of ishares UCITS plus Kotak’s own roughtly works to the same as ICICI Nasdaq. The purpose of SIP is to do longer periods and aveerage. 2 months defeats the purpose. Vidya
These moves by the market regulator really hit hard and make you feel like you’re in a “developing” country.
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