Equity outflows continue; industry added Rs. 31,654 crore

Mutual Fund industry saw a temporary relief after witnessing outflows in last two months consecutively. In July 2010, the industry saw a net inflow of Rs. 31,654 crore to its kitty mainly on account of net inflow of Rs. 34,303 crore in Liquid/Money Market category. On the other hand, the total AUM increased to Rs. 6.68 lakh crore, a rise of Rs. 38,420 crore or 6.10 per cent over the last month figure. All categories except FOF Investing Overseas reported an increase in its net AUM. While Income Funds comprising 50 per cent of total AUM reported a meager increase of 1.11 per cent in its AUM, Liquid/Money Market Fund category reported an increase of 46.56 per cent. The latest AUM figures for Income and Liquid/Money Market Fund stand at Rs. 3,31,949 crore and Rs. 1,05,333 crore respectively. The Other ETFs category shows a dramatic increase in AUM after Motilal Oswal Mutual Fund successfully closed its maiden fundamentally modified ETF MOSt Shares M50 with a total AUM of Rs. 236 crore. It has a total AUM of Rs. 1,532 crore, an increase of Rs. 397 crore other its last month figure. The Diversified Equity category showed a negligible increase of 0.10 per cent to Rs. 1,78,492 crore. Other categories too moved up albeit marginally.


The Equity Diversified Fund category saw a major redemption having a total outflow of Rs. 8,413 crore against an inflow of Rs. 5,013 crore, thus, a net redemption of Rs. 3,400 crore. The equity markets have already touched their February 2008 level and investors have become cautious of overheat going in the equity market as they fear a correction from this level. Moreover, some investors who were sitting at their investment since 2007 had also redeemed their money. Hence mutual funds booked profit to meet investors’ redemption pressures. As per the latest SEBI figures, Mutual Funds had net sale of Rs. 4,405 crore in July 2010.

Table: Mutual Fund Asset Growth

The Liquid/Money Market saw the maximum inflow of Rs. 34,303 crore mainly on account of switch outs from Income/Ultra Short Term Funds to Liquid Funds. After the introduction of new MTM ruling on debt securities having average maturities more than 91 days, the Ultra Short Term Funds were the worst hit. Corporate fears that it will bring volatility to the funds which will bring down the returns. They eventually shifted to Liquid Funds or redeemed their investments. The Income category saw a net inflow of Rs. 475 crore only.


In other categories, ELSS saw a new outflow of Rs. 139 entering into fourth month having outflows consecutively month-on-month. Balanced Funds too saw an outflow of Rs. 43 crore continuing its last month losing streak. However, the industry has been witnessing a major shift since last few months from active funds to passive funds. ETFs which cater to passive funds category have seen a substantial increase in inflows. The Gold ETF and other ETFs category added Rs. 155 crore and Rs. 375 crore respectively.

The month also saw the launch of 7 open-ended NFOs and 15 close-ended NFOs (mainly FMPs). The 15 close-ended income funds collected Rs. 2,444 crore from the market while the 3 open-ended close ended funds collected Rs. 840 crore. The income category NFOs were Axis Income Saver, Canara Robeco InDiGo Fund and Peerless Income Plus Fund. The 2 open-ended Equity NFOs, mainly Mirae Asset Emerging Bluechip Fund and SBI PSU Fund collected a total of Rs. 705 crore. In other ETFs category, Motilal Oswal MOSt Shares M50 ETF collected Rs. 236 crore in its maiden NFO.

Source: MOSL Mutual Fund Desk

MOSt Shares M50 – Is it another offer in the crowd?

Recently SEBI’s Chairman C B Bhave commented if 3000 schemes flooded in the industry served a purpose to investors’ fraternity as they have failed to convince the investors of the long-term benefits of their products. He also suggested that the mutual funds should provide better returns by rolling out simpler products. Now coming to another zone where Mutual Funds continue to roll out new NFOs – HDFC Gold ETF, Peerless Income Plus Fund, MOSt Shares M50 ETF, Taurus MIP Advantage, Benchmark Short Term, Axis Triple Advantage and many Fixed Maturity Plans (FMPs). I have been wondering if I am an investor which one I should choose. As a simple investor, my aim should be to maximize returns with least volatility; also I should bear minimal costs.


Among the above captioned NFOs, all the NFOs were more or less similar to the existing plans offered by another fund houses; I found a unique offer by Motilal Oswal AMC with its maiden NFO MOSt Shares M50 ETF. Though the ETF concept is new in India and has not been well received by investors yet, ETFs are on high. Historically, it has grown exceptionally even in intermittent market. Let me give out in detail why MOSt Shares M50 ETF is unique and investors’ friendly.

Product Features

As claimed by Motilal Oswal Mutual Fund, MOSt Shares M50 ETF is India’s 1st fundamentally weighted ETF based on the S&P CNX Index (Nifty). Logically, it is the remixed version of Nifty 50. The fund house has created its own basket “MOSt 50 Basket”, intellectually owned by MOAMC and managed by India Index Services & Products Ltd. (IISL). The weights of stocks in MOSt 50 Basket will be decided by their pre-defined methodology based on stock’s fundamentals (ROE, Net Worth, Retained Earnings and Valuation).

The fund aims to generate investment returns with minimal costs and active investment style. With no entry and exit load, the investors get another opportunity in terms of liquidity. The fund manager will invest 95-100% of the money in MOSt 50 basket and the exposure to fixed income and money market instruments along with cash call will be restricted to 0-5% of the total money invested.

Investment Strategy

The fund has reworked the weights of stocks in Nifty based on its own defined fundamentals such as Return on Equity, Net Worth, Retained Earnings and Price. They have designed the capital allocation strategy of the MOSt 50 basket to reduce the risk associated with price volatility of individual constituents. The table 1 defines the basket classification of MOSt 50 Basket.

So, some of the companies will be more dominant than others based on the current methodology.

Back Testing

The fund has done the back-testing with current methodology for the last 3-year period and the portfolio has given an additional alpha (excess of returns over its benchmark, in simple terms) of 13.2 per cent. It has also beta value of 0.94 against Nifty beta of 1.

Should you buy?

As far as the ETF story is going on, it has been building up in India. People have started recognizing the importance of ETFs as fund managers have failed to outperform the benchmarks over a longer period. Moreover, this new ETFs, also called as active ETF scored over others and provide uniqueness in terms of simplicity and maximization of returns over a longer period.