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.