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Why is the AUM of Motilal Oswal Nasdaq Funds so low?

The ETF has liquidity issues but the FoF is a convenient vehicle for long-term investors and it is seeing a steady rise in AUM, explains Dhirendra Kumar

The performance of Motilal Oswal Nasdaq ETF for one, three, five and seven years' trailing returns are excellent and the same has been the case with Motilal Nasdaq FoF since its inception. Then why are the AUMs of these funds so low? Is this because of the liquidity issue? Will there be any issue if we invest in the FoF?
- T M Rudresh

Yes, they have not been popular and in fact, Motilal Oswal Nasdaq Fund of Fund follows a relatively new theme. This fund invests in Motilal Oswal MOSt Shares NASDAQ-100 ETF, which was earlier very poorly structured in terms of liquidity. It was very difficult to buy that ETF and even if you could buy it, the return of the fund was actually not the return that an investor would have realised. Maybe it used to trade at an obscene premium to its NAV. It was virtually impossible to buy that fund.

Ever since the Motilal Oswal Nasdaq 100 FOF has come, it has become efficient. However, there is still a huge anomaly in terms of the price at which we buy based on the premium/discount to the underlying fund, which means it is still not very efficient. But yes, it is becoming larger. For a FoF to function very efficiently, there should be reasonable liquidity in the underlying investment, which in this case is the ETF in which there should be a certain threshold investment of scale so that the fund is able to create a unit or a basket by investing that much money. But if every day only 10-15 lakh gets invested in the fund and if that money is to be invested by the ETF, I do not think it would be proper for them to create or replicate that basket for such a small amount.

So, this is going to be a little inefficient but I think the fund of funds is turning out to be a better vehicle in terms of convenience of buying a mutual fund, setting up your SIP and the subsequent process that is familiar. I think over a longer period of five years or more, if you are doing your SIP, all the pluses and minuses or all the aberrations that you see due to your inability to buy the units at the NAV, it should cancel out i.e. sometimes you benefit and sometimes it is to your disadvantage.

So, if you have to invest in this fund, I think it's a good and one of the few vehicles which gets you the exposure, with convenience, to the technology sector of the US because NASDAQ 100 is so overweight on these top five companies which account for the top five technology companies of the world. And though they're American, their market and the kind of revenues they draw from all over the world make them global businesses. I think it is proving to be a good investment vehicle.

Value Research has been a believer. I don't know if you remember, but I used to run a portfolio on ET Now the television channel for some seven-eight years back and in our aggressive portfolio, the ETF was there even then. That particular position in that portfolio of four funds i.e. the aggressive portfolio which I used to run with a weekly update on the television show, has turned out to be one of the blockbuster portfolios which every once in a while I go back and see their performance.

So, I would say that we have been a long-term believer in this ever since we started recommending it. In fact, the fund of funds has been part of our Best Funds to buy for many years now. So yes, Motilal Oswal Nasdaq 100 FOF provides us with a convenient avenue to invest, but do start with a long-term orientation.