This is a review of two passive Fund of Funds funds from Motilal Oswal Asset Agocation – Aggressive & Conservative that are currently in the NFO Period (February 9 to March 5, 2021). We explain why these offers are not “passive asset allocation” funds.

What are Motilal Oswal Asset Allocation Passive FoFs?These are two open-ended mutual funds that invest in ETFs or index funds with Indian stocks (Nifty 500), US stocks (S&P 500), Indian Gilts (Nifty 5Y Gold Index) and gold. They are therefore referred to as a fund of fund.

Scheme of the investment basket of Motilal Oswal Asset Allocation Passive FoFs
Scheme of the investment basket of Motilal Oswal Asset Allocation Passive FoFs. Source product faq

What does conservative and aggressive refer to? There are two funds of funds that invest in different passive funds (as mentioned above). They are categorized (somewhat arbitrarily) as aggressive and conservative due to their different indicative asset allocation – see details below.

The so-called “conservative” fund has a risk rating of “high” and the aggressive fund has a rating of “very high”. This alone should be enough for investors to reject the “conservative” option (red flag 1).

Are these passive asset allocation funds of funds? No they are not! You are Fund of Funds (check); You have an asset allocation (check); You invest in passive products (check). However, these FOFs do not passively follow an asset allocation. They can actively vary their asset allocation over a wide range and are therefore active funds (red flag, counted below).

How are these two funds of funds taxed? As a “non-equity” fund (colloquially as a debt security fund).

Why is the aggressive fund of funds taxed like equity if it invests 95% in equity? Two reasons. To be taxed like an equity fund, a mutual fund should invest 65% of its assets in Indian stocks, either directly or indirectly through ETFs. (1) This fund of funds can invest in Indian stocks through index funds or ETFs (and not just ETFs). (2) The asset allocation of Indian equity can drop below 65%.

There is a big difference between the asset allocation of the benchmark (created for these funds) and the asset allocation of the funds (red flag 2).

Motilal Oswal Asset Allocation Passive FoF: Aggressive allocation

Aggressive FOF benchmark: 60% Nifty 500 TRI + 20% S&P 500
TRI (INR) + 5% domestic price of gold + 15% Nifty 5 Yr Benchmark G-Sec Index

The back-tested return performance applies to this asset allocation. If the fund had stuck to this asset allocation, it would have been a passively managed asset allocation fund. Unfortunately this is not the case.

The fund has immense freedom to vary its asset allocation (red flag 3).

  • 40% to 90% in the Motilal Oswal Nifty 500 Index Fund / Motilal Oswal M50 ETF
  • 10% to 30% in the Motilal Oswal S & P 500 index fund / Motilal Oswal NASDAQ 100 ETF
  • 0% to 40% in the Motilal Oswal 5 Year G – Sec ETF
  • 0% to 20% in the ICICI Prudential Gold ETF
  • 0% to 5% on the money market (cash)

How will the asset allocation change? Unknown (red flag 4)

Motilal Oswal Asset Allocation Passive FoF: Conservative allocation

Benchmark: 25% Nifty 500 TRI + 10% S & P 500 TRI (INR) + 5% domestic price of
Gold + 60% Nifty 5 Yr Benchmark G-Sec Index.

Asset allocation can vary significantly in unknown ways. (red flag 4)

  • 0% to 40% in the Motilal Oswal Nifty 500 Index Fund / Motilal Oswal M50 ETF
  • 0% to 20% in the Motilal Oswal S & P 500 index fund / Motilal Oswal NASDAQ 100 ETF
  • 40% to 90% in the Motilal Oswal 5 Year G – Sec ETF
  • 0% to 20% in the ICICI Prudential Gold ETF
  • 0% to 5% on the money market (cash)

The performance of the benchmark allocation is not relevant to determine whether or not to invest in the fund of funds due to the unknown investment strategy and the considerable deviation in the indicative asset allocation. Therefore, their performance is not included in this review (but needs to be discussed independently). There are enough red flags to avoid these Kichdi offerings: like a grocery Youtuber turning leftovers into a video, the AMCs created a product with fancy formulations to bring AUM into their existing funds. This is just another dynamic asset allocation fund disguised as a fund of fund.

This is not a passive fund of funds. This is an actively managed fund of funds that invests in passive funds. This is a big difference and is enough to make you decline both of these offers. As mentioned above, investors can quickly exit such offers within minutes by looking for red flags.

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