Motilal Oswal Asset Management Company (MOAMC) on Thursday announced the launch of Motilal Oswal Nifty Microcap 250 Index Fund, a passive fund offering exposure to microcap stocks. The new fund offer (NFO) will be available for subscription till June 29, 2023. It is an open-ended fund replicating/tracking total returns of Nifty Microcap 250 Index.

The fund aims to provide investors an opportunity to participate in the growth potential of microcap stocks, Motilal Oswal said in a statement.

About Nifty Microcap 250 Index

The Nifty Microcap 250 Index is designed to measure performance of the top 250 companies excluding those already present in the Nifty 500 constituents. The index is well-diversified, with its top 10 holdings accounting for only 11 percent as against 59 percent in Nifty 50 Index. Further, it provides diversified exposure to sectors like industrials, consumer discretionary, commodities and healthcare that are usually underweight in broad-based market indices, it said.

Over the last 3 years the Nifty Microcap 250 Index has delivered 58 percent on an annualised basis. While microcaps exhibit strong performance potential, it may also experience higher volatility and extended periods of underperformance to broad-based market indices.

About the fund

The investment objective of the scheme is to provide returns that, before expenses, correspond to the total returns of the securities as represented by Nifty Microcap 250 Index, subject to tracking error. However, there is no guarantee or assurance that the investment objective of the scheme will be achieved. The Indicative Base Total Expense Ratio of the fund: Regular – 1.00 percent, Direct – 0.40 percent.

The minimum application amount for Motilal Oswal Nifty Microcap 250 Index Fund is Rs 500 and in multiples of Re 1 thereafter. On ongoing basis investor can purchase/redeem units of the scheme through financial advisor or by log-in to www.motilaloswalmf.com.

Why microcaps?

Microcap companies which comprise approximately 3 percent of the total market capitalisation of listed stocks poses distinct characteristics that make them a decent investment prospects, said Motilal Oswal in the statment.

"These companies are known for their agility, niche market focus and strong promotor-driven dynamics. It is worth noting that, microcaps often fly under the radar of research analysts with more than 40 percent of companies receiving no analyst coverage at all and only 12 percent of the stocks have more than 5 analyst coverage. In fact, less than 4 percent of mutual fund industry’s AUM is invested beyond top 500 companies. This creates a higher likelihood of finding hidden opportunities," it said.

Moreover, various studies have indicated that small companies tend to outperform their larger counterparts, due to factors like illiquidity premium, small company risk premium etc. This makes investing in microcaps an attractive investment proposition, it added.

Pratik Oswal, Head of Passive Funds, Motilal Oswal Asset Management Company Ltd said, “Microcaps have compelling track record of delivering higher returns compared to its counterparts, albeit at a higher risk. Investors are encouraged to consult their financial advisors, a prudent allocation of 5-10 percent to this fund may help enhance overall portfolio returns."

(Edited by : Anshul)