Motilal Oswal’s fund offer asks investors to take a blind bet

The draft document of offer for the new ETF by Motilal Oswal AMC uses a proprietary index. But it does not explain the weightage assigned to the stocks of the underlying index or how the index would have performed in the past

Motilal Oswal Asset Management Company (MOAMC) has decided to take the road less travelled and launch an exchange-traded fund (ETF) as its first fund offering. Being an ETF, it has a lot going for it. We consider indexing as the preferred route to investing in mutual funds, since it eliminates a fund manager’s failed effort at stock picking—and finally underperforming the underlying index. Also, it is the first equity ETF offer after a long time. However, poor quality of disclosures in the draft offer document of Motilal Oswal AMC will surely put off investors.

There is a lot of ambiguity regarding the index underlying the Fund i.e., its benchmark index. The draft offer document filed with the Securities and Exchange Board of India (SEBI) is almost secretive about this aspect. Motilal Oswal AMC has tweaked the S&P CNX Nifty to arrive at a ‘fundamentally enhanced’ index called MOSt 50 index. Its constituents will be the same as that of the constituents of the S&P CNX Nifty. However, the draft offer document has failed to provide any information regarding the weightages assigned to each constituent of the index since it will be different from the Nifty. It also has no word on how the index would have done in the past.

The only fact the draft mentions is that the scheme would invest in the securities comprising the underlying index in the same proportion as the securities have in the index. As such, the benchmark itself is the criteria for selection of stocks. The fund, being a passively managed one, would not select securities in which it wants to invest, but would be guided by the underlying index.

Investors have been kept in the dark about the actual methodology to be followed by this adapted index. The document states, “The MOSt 50 Index i.e. the Underlying Index is designed by AMC which owns the intellectual property of the methodology of the Index. The weightages assigned to the constituents of the Underlying Index are as per the methodology formulated by the AMC which may consequently affect the returns of the Scheme.”

Moneylife’s email to the company seeking clarification on this matter went unanswered till the time of writing this story. The fund company should explain how the MOSt index has been computed and also how this index would have performed on a volatility-adjusted basis vis-à-vis the Nifty over different market cycles.

If there is no clarity about the index and its historical performance, how would investors know how the Fund is going to go about investing its money? In essence, the document is asking investors to blindly place their faith in the process of the Fund. This document is readily available for public viewing at the SEBI site. If SEBI clears the draft offer as it is, it would mean that the final offer document will carry with it all the ambiguities mentioned above.

Normally, the fund offer prospectus is expected to clearly define the characteristics of the fund. The AMC’s unwillingness to share the workings of the underlying index with the public should raise some eyebrows.

SEBI, as the market regulator, should insist that the AMC disclose the relevant information in full; otherwise, it should not clear the draft offer document. However, considering its past indifference to shady prospectuses, it is unlikely that SEBI will crack its whip.

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    R Balakrishnan

    1 decade ago

    What else can one expect when a broker hits the customer with a fund offering? He must have exhausted his PMS client base with returns lagging and some promise of fancy footwork in the new offering will help to make a nice power point presentation.
    End of the day, one more scheme...
    As a first offering, it makes sense. You do not require a fund manager or a CIO. The boss's driver can run this scheme...


    1 decade ago

    Have you noticed the the bid-ask spread in Nifty BEES before recommending it?


    1 decade ago

    why take trouble of reading, evaluating prospectus n then investing in a MF which will do what ordinary investor does. Lose some, win some. Instead
    just buy/sale Nifty bees. U do not have to even read any Annual Report n try to find out what is between/behind the line or hidden in between. It reflects the whole Market -Borkar PS wonderful thing is u do not have to sit before the TV n hear/read YAP YAP. Get the freedom

    Market to move sideways

    Uproar in Parliament over the Women’s Reservation Bill pulled the highly volatile Indian markets downwards

    Indian markets remained highly volatile following an uproar over the Women’s Reservation Bill in Parliament. At the end of the day, the Sensex declined 50 points from the previous day’s close to 17,053 while the Nifty declined 23 points to close at 5,102. From here on, we expect the market to move sideways.

    At the end of the day, Morarjee Textiles zoomed 20%. The board of the company is considering the merger of its subsidiary Integra Apparels and Textiles Ltd with the company.

    Wipro remained flat after the company secured an order from Financial Intelligence Unit, a unit of the ministry of finance, to develop an information technology network to track all irregular financial transactions.

    Kale Consultants jumped 8% after the company secured an order for one of its airline software products for an undisclosed sum.

    Nissan Copper fell 1% after Danial Investment, a promoter group company, pledged seven lakh shares representing 4.81% stake of the firm.

    Man Industries (India) surged by 4% after the company secured an order worth Rs950 core from Kuwait for supply of 1,70,000 tonnes of large diameter pipes in both LSAW as well as HSAW segments.

    Chambal Fertilizers & Chemicals Ltd has taken delivery of a new Aframax Tanker, ‘Ratna Shalini’ (DWT 105,000MT), from Hyundai Heavy Industries Co, South Korea. The stock remained flat.

    ABB Ltd has won orders worth $22 million from Haryana Vidyut Prasaran Nigam Ltd to provide four turnkey substations for the regional grid. However, the stock was down 1%.

    Patel Engineering has received approval from the government for coal linkage for its thermal projects, to be implemented by its wholly-owned subsidiaries.
    Coal deliveries are expected in 24 months from now. The stock remained flat.

    During the day, minister of state for finance Namo Narain Meena said that the government will continue with economic reforms to strengthen the economy. Vice president Hamid Ansari suspended seven MPs for disrupting proceedings in the Rajya Sabha over the Women's Reservation Bill. The seven members belong to the Samajwadi Party, Rashtriya Janata Dal and LJP.

    RBI governor D Subbarao said that inflation should moderate in the coming months. He said that the central bank will ensure that interest rate levels do not have a negative impact on the competitiveness of the economy. He added that should India need to manage inflationary expectations, the central bank could turn to its traditional mix of policy tools including use of both liquidity and cash reserve requirements. Mr Subbarao said that the government’s plans to reduce the fiscal deficit this year and in 2011 would help to manage inflationary expectations and facilitate demand for private credit. The government’s borrowing programme is likely to proceed smoothly over the next financial year, he said. India has set its gross market borrowing target for 2010-11 at a record Rs4.57 lakh crore, up by 1.3% from the previous year, a move that has pushed bond prices lower as investors have anticipated a flood of fresh debt supply. When asked if he anticipated a sharp rise in levels of yields in 10-year government bonds, Mr Subbarao said that yields had risen slightly this year but would be managed over the coming 12 months.

    During the day, Asia’s key benchmark indices in Singapore, Hong Kong, South Korea, Taiwan, China, and Indonesia were up by between 0.05%- 0.52%. However, Japan’s index ended 0.17% lower.

    On Monday, 8 March 2010, the Dow Jones Industrial Average was down 12 points while the S&P 500 remained flat. However, the Nasdaq Composite Index was up 5 points.

    As per media reports, the Portugal government launched its own budget cuts to shore up its public finances. The plan includes slashing the budget shortfall to 2.8% of gross domestic product (GDP) in 2013 from 9.3% of GDP last year.

    In premarket trading, the Dow was trading 38 points lower.


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    BSE among top 10 bourses globally

    The oldest Asian bourse saw its market capitalisation surge 102% to $1.31 trillion in 2009 compared to 2008, pushing the country's premier exchange into the league of the top ten bourses across the world

    The Bombay Stock Exchange (BSE) has emerged as one of the top ten bourses globally in terms of valuation of shares traded, with its market valuation nearly doubling to Rs60,79,892 crore ($1.31 trillion) last year, reports PTI.

    The oldest Asian bourse saw its market capitalisation surge 93.3% in 2009 compared to 2008, in turn pushing the country's premier exchange into the league of the top ten global bourses, says a report by the World Federation of Exchanges (WFE).

    The Paris-based WFE is a trade association of 52 publicly-regulated stocks, futures and options exchanges.

    Reflecting the bullish investor sentiment despite the adverse global financial situation, the market capitalisation of the BSE surged to Rs60,79,892 crore ($1.31 trillion) last year from the paltry $647 billion in 2008. In dollar terms, the BSE valuation skyrocketed nearly 102% in 2009, while the rise was a tad less at 93.3% in rupee terms, according to WFE data.

    The BSE benchmark 30-share index, the Sensex, rallied over 80% last year and closed at 17,464.81 points on December 2009. The key index had ended at a low of 9,647.31 points on December 2008.

    Among the top ten bourses with the largest domestic equity market capitalisations at the end of 2009, the BSE is placed at the tenth spot, according to the WFE.

    The league is topped by the NYSE Euronext of the US with a market capitalisation of $11.84 trillion and the Tokyo Stock Exchange Group ($3.31 trillion) at the second place.

    The Nasdaq OMX ($3.24 trillion) and NYSE Euronext (Europe) with a market valuation of $2.87 trillion are at third and fourth spots, respectively. The London Stock Exchange ($2.79 trillion) is placed at the fifth slot.

    Others in the top ten list are the Shanghai Stock Exchange ($2.71 trillion), Hong Kong Exchange ($2.31 trillion), TMX Group of Canada ($1.61 trillion) and the Brazilian BM&F BOVESPA with a market valuation of $1.34 trillion.

    According to the WFE, the member-bourses in the Asia-Pacific region had a combined market capitalisation of $14.09 trillion in January this year. The figure is higher than the combined market valuation of the exchanges in Europe, Middle East and Africa regions which stood at $13.55 trillion in January.

    At the end of 2009, the market capitalisation of all the companies listed on the WFE member-exchanges stood at $46.50 trillion.

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