Motilal Oswal M100

Alchemist

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#1
Motilal Oswal M100 has listed today.

It is only ETF based on the CNX Midcap Index.

Those who want to invest in midcap stocks via an ETF have another choice - Junior Nifty BeES, which is based on the CNX Nifty Junior Index.

The M50 consists of Nifty stocks, but not in the same proportion as the Nifty.

M100 consists of CNX Midcap stocks in the same proportion as the CNX Midcap Index.
 

Alchemist

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#4
Is investment in M100 better than Junior or CNX 500 from long term investment view?

Request senior members to advise.
S&P CNX 500 is a broad market index and includes all the 500 top companies listed on the NSE.

This index should be a market performer in the long run. The presence of large caps in this index, means that the index is unlikely to outperform or underperform the Nifty by a big margin in the long-term.

It is better to invest in a pure Nifty ETF than into an ETF based on this index.

If Indian markets go much higher in future, there is a good probability that both CNX Nifty Junior and CNX Midcap indices will outperform CNX 500.

Whether M100 will outperform CNX Nifty Junior or CNX Midcap, is anybody's guess.

As mutual fund manager, Motilal Oswal has limited performance history and it is not possible to say how its funds will perform in the future.

M100 was launched just 6 months back and M50 was launched 12 months back.

M50 has underperformed its benchmark index since inception.

http://www.mostshares.com:12477/MutualFund/MOSLM50Alpha.aspx

M10 has marginally outperformed its benchmark index since inception.

http://www.mostshares.com:12477/MutualFund/MOSLMidcapM100Compare.aspx
 
#7
S&P CNX 500 is a broad market index and includes all the 500 top companies listed on the NSE.

This index should be a market performer in the long run. The presence of large caps in this index, means that the index is unlikely to outperform or under-perform the Nifty by a big margin in the long-term.

It is better to invest in a pure Nifty ETF than into an ETF based on this index.

If Indian markets go much higher in future, there is a good probability that both CNX Nifty Junior and CNX Midcap indices will outperform CNX 500.

Whether M100 will outperform CNX Nifty Junior or CNX Midcap, is anybody's guess.
Thanks for your valuable inputs, just to add to your points I downloaded the data from nseindia.com and the summary are as follows:

Point to point return for period

CNX500; Junior; Nifty; CNX Midcap ;CNX Smallcap.
01 Jan 08 till date 0.84 0.94 0.93 0.91 0.66.
01 Jan 08 till 31Mar 09 0.43 0.35 0.51 0.37 0.28.
01 Apr 09 till 31Oct 10 2.14 2.99 1.96 2.81 2.92.

From Jan'08 highs:

Smallcap, Junior and Midcap lost the most;

Nifty, Midcap and Junior indices are almost there at the Jan'08 highs as on date;

Best returns are on Junior followed by Smallcap and Midcap from Apr'09 to Oct'10 highs

But really not an eye popping difference in returns of the small cap, mid cap and junior indices.

Even in the longer term 01 jan'04 (base date of small cap index) till date the returns are 2.9 times for CNX 500 and 3.7 times for CNX small cap; Junior 3.3, nifty 3 and mid cap 3.4 times.

Your comments please.
:elefant:
 
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Alchemist

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#8
Even in the longer term 01 jan'04 (base date of small cap index) till date the returns are 2.9 times for CNX 500 and 3.7 times for CNX small cap; Junior 3.3, nifty 3 and mid cap 3.4 times.
2.9 times for CNX 500 and 3 times for Nifty.

The returns given by CNX 500 amd Nifty are similar and that's what I expect to happen in future too.

Small caps have done the best - 3.7 times.

Smaller stocks outperform large stocks in the long run (5 years and beyond), provided the overall trend of the market remains up.

Small caps usually under-perform in a bear market.

Indian stock markets still haven't fully emerged from the 2008 shock. That's the reason why liquidity and confidence is still eluding small cap stocks.

If we again enter a full fledged bull market, small caps will start outperforming large caps.
 
#9
There are 2 main things to consider when looking at an index fund.

1) Tracking Error - this is the difference between the proportion of stocks in the fund & the proportion of stocks in the index it's supposed to be tracking. There are several Indian index funds which have relatively large tracking errors.

2) Expense Ratio - One of the main advantages of an index fund is supposed to be a low expense ratio - very little expense should be there in an index fund. In the USA, Vanguard has index funds where the expense ratio is even less than 0.20%.

However, in India

Benchmark Nifty - 0.50%
Benchmark Nifty Junior - 1.0%
Benchmark CNX 500 - 1.5%
UTI Nifty - 1.25%

This is pretty steep but still below the expense ratios of managed funds.
 

Alchemist

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#10
Benchmark Nifty - 0.50%
Benchmark Nifty Junior - 1.0%
Benchmark CNX 500 - 1.5%
UTI Nifty - 1.25%
US funds are much larger in size and that may be one reason why their expense ratios are lower.

Is the breakup of these expenses ratios available? I mean how much is fixed (e.g. office rents) and how much is variable (e.g. transaction costs)?
 
#11
US funds are much larger in size and that may be one reason why their expense ratios are lower.

Is the breakup of these expenses ratios available? I mean how much is fixed (e.g. office rents) and how much is variable (e.g. transaction costs)?
Check the Information Sheet of the Funds from the fund company websites. I think it's available there.

I think 1/2 or more than half of the expense ratios come under "Management & Advisory Fee". I am not sure whose advice is taken in this case.
 
#12
There are 2 main things to consider when looking at an index fund.

1) Tracking Error - this is the difference between the proportion of stocks in the fund & the proportion of stocks in the index it's supposed to be tracking. There are several Indian index funds which have relatively large tracking errors.

2) Expense Ratio - One of the main advantages of an index fund is supposed to be a low expense ratio - very little expense should be there in an index fund. In the USA, Vanguard has index funds where the expense ratio is even less than 0.20%.

However, in India

Benchmark Nifty - 0.50%
Benchmark Nifty Junior - 1.0%
Benchmark CNX 500 - 1.5%
UTI Nifty - 1.25%

This is pretty steep but still below the expense ratios of managed funds.
Your point is well taken.

My way of looking is as follows:

As an passive long term investor I have option to do an SIP / buy from MF house or buy an ETF.

Through MF
End of the day NAV;
Expenses as pointed out by you are higher.
No manual intervention, less emotions.

ETF
Real time prices (subject to tracking error).
Relatively lower expenses.
Emotion comes into play.

Hopefully with the awareness about ETFs the expenses should probably go lower.

So despite higher expenses than US based ETFs; I think investing in ETFs is better than MFs and as observed above after steep fall buying mid/small cap ETFs and in situations like the one we are into presently near earlier highs nifty / broad based ETF's depending on individual risk appetite.

Your comments please.
 

Alchemist

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#13
I think investing in ETFs is better than MFs and as observed above after steep fall buying mid/small cap ETFs and in situations like the one we are into presently near earlier highs nifty / broad based ETF's depending on individual risk appetite.

Your comments please.
ETFs may be good for small investors but the lack of liquidity makes them riskier for HNIs.

For example, M50 had a turnover of just 16.91 lac today and M100 had a turnover of Rs 12.63 lac.

If an HNI had sold Rs 25 lac or Rs 50 lac worth of units today, he wouldn't have got the best price for his units.

This lack of liquidity would have eroded any "lower expenses" advantage that his ETF may have had over mutual funds.
 
#14
ETFs may be good for small investors but the lack of liquidity makes them riskier for HNIs.

For example, M50 had a turnover of just 16.91 lac today and M100 had a turnover of Rs 12.63 lac.

If an HNI had sold Rs 25 lac or Rs 50 lac worth of units today, he wouldn't have got the best price for his units.

This lack of liquidity would have eroded any "lower expenses" advantage that his ETF may have had over mutual funds.
The lower expenses is not because it's an ETF, but because it's an index fund. You have Index funds which are not ETFs - they also should have lower expense ratios. Many of Vanguards Index funds which have expense ratios of 0.2 or less are not ETFs. As a matter of fact ETFs are worse than regular index funds because you also have to pay the brokerage which you don't in a regular index fund. Due to this reason, I avoid ETFs (as compared to regular index funds) unless I am planning to hold it for more than a few years - which I usually do.

Other than that, I don't think ETFs suffer from any lack of liquidity. ETFs though are traded on the exchange, it's not the same way as stocks - read this - Exchange-traded fund - Wikipedia, the free encyclopedia
 

Alchemist

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#15
Other than that, I don't think ETFs suffer from any lack of liquidity.
ETFs in US are very liquid, but the case in India is very different. Other than the gold funds, the turnover of most ETFs is in lacs and such low volumes are not good enough for HNIs or other larger investor to enter or exit without causing a large price move in either direction.

e.g. Nifty BeES had a turnover of only Rs 1.58 crore yesterday.
 
#16
ETFs in US are very liquid, but the case in India is very different. Other than the gold funds, the turnover of most ETFs is in lacs and such low volumes are not good enough for HNIs or other larger investor to enter or exit without causing a large price move in either direction.

e.g. Nifty BeES had a turnover of only Rs 1.58 crore yesterday.
The liquidity of an ETF doesn't depend on the trading volume. That's because, as I said earlier, though they are traded on the exchange - they are the same as stocks. Here are two links which explain why

Understanding ETF Liquidity | ETF Trends

ETF Liquidity Myth Dispelled - ETF Center - Yahoo! Finance
 

Alchemist

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Staff member
#17
The liquidity of an ETF doesn't depend on the trading volume.
Indian ETF market is not comparable to US market.

US market has market makers, which provide liquidity to stocks and ETFs.

Indian market is purely order driven. There are no market makers in India to provide liquidity.

Secondly, "authorized participants" of many Indian ETFs are hardly active.

Market makers and authorized participants in US markets ensure that investors are able to enter and exit ETFs without any significant price movement.

Marker makers always offer quotes to buy and sell ETFs, irrespective of the trading volume of the ETF.

That doesn't happen in India.

Liquidity is defined as:

In business, economics or investment, market liquidity is an asset's ability to be sold without causing a significant movement in the price and with minimum loss of value.
Market liquidity - Wikipedia, the free encyclopedia

If someone tries to sell/buy Rs 25 lac or Rs 50 lac worth of Indian ETFs, he won't be able to so without significant price change.

That's exactly a liquidity problem.
 
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