Motilal Oswal MF to launch fund that covers 1,000 stocks; should you invest?

The benchmark to the Motilal Oswal BSE 1000 Index Fund would be the BSE 1,000 Index, which is India’s broadest equity index, capturing the top 1,000 listed companies across largecap, midcap, smallcap, and microcap segments. The index fund offers exposure to approximately 94 percent of India’s listed market capitalisation.

So far, the broadest equity index consists of the top 750 Indian stocks by market capitalisation.

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The 1,000 companies in the index are selected on the basis of the total market cap and the index is reconstituted semi-annually.

Portfolio construction

By expanding to 1,000 stocks from the existing broadest funds, the BSE 1,000 index includes an additional 250 microcap companies, significantly increasing its sectoral and thematic reach.

BSE 1,000 gives exposure to 57 industries against 52 in the Nifty Total Market Index, which has 750 stocks.

Further, the new index fund adds companies from under-represented segments such as information technology (IT) hardware, digital media, specialty chemicals, niche manufacturing, and domestic consumption plays.

According to the fund house, these companies tend to be under-researched as 87 percent of microcaps have five or fewer analyst coverage, offering discovery potential for investors.

“The BSE 1000 Index Fund is a strong long-term investment vehicle for investors who want to participate in India’s growth story in a low-cost, passive format — with better diversification and performance potential than traditional benchmark indices,” said Pratik Oswal, Chief of Passive Business, Motilal Oswal Asset Management Company.

The current valuation of the BSE 1,000 is close to its long-term median P/E (price to earnings), based on data over the past seven years. Its current P/E stands at 25.37, below the last seven-year average of 27.05.

“The market has corrected 5-10 percent recently, bringing valuations to more reasonable levels. Broader market indices like BSE 1,000 appear to be in a fair value zone, with select microcap and smallcap segments even showing pockets of undervaluation. This creates a strong entry point for long-term investors seeking diversified equity exposure,” said Oswal.

What works?

A 1,000-stock fund like the BSE 1,000 gives investors a very broad exposure to the Indian stock market. This means you are investing across large-cap, mid-cap, small-cap, and even micro-cap stocks. An investor doesn’t have to worry about which sector or stock to pick because the fund covers almost everything. This makes it a convenient option for someone looking for a total market approach.

“The 750-stock index was already broad, but moving to 1,000 stocks gives even more depth and coverage. It’s like giving investors an extra layer of comfort and access. While very few people actually track or invest in 1,000 companies individually, this index does that automatically. You are not just covering the popular or large companies, but also many smaller and emerging ones,” said Santosh Joseph, CEO of Germinate Investor Services.

What doesn’t work?

Keep in mind that more stocks don’t mean better returns. The performance will depend on weighting methodology and market cycles (e.g., smallcaps may underperform in bear markets).

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“Tracking error and the cost of rebalancing may be slightly higher here than in narrower indices,” said Viral Bhatt, Founder, Money Mantra.

Also, keep in mind that there are 750 smallcap and microcap stocks in this index substantially increases the risk, compared to a largecap, midcap or even diversified equity fund. In bear market conditions, when smallcaps usually take a bigger hit than largecap and midcap stocks, this index might tend to underperform.

What should investors do?

According to Joseph, this index can be a very good fit for retail investors, especially those who want a long-term investment without active stock picking.

“If your investment horizon is really long — say 5, 10, or 15 years —this index can make sense. It’s ideal for someone who wants to benefit from the overall growth of the Indian economy without missing out on any stock that could add value. It is also a good option for investors who prefer passive funds that are automatically rebalanced and transparent. While it is great for retail investors, it is not limited to them,” said Joseph.

According to Bhatt, India's next phase of growth may come not just from the top 50-100 companies, but from emerging sectors and smaller companies.

Bhatt believes that this could be beneficial for those who don’t want to manage separate large-cap, mid-cap, and small-cap allocations and long-term investors with a high-risk appetite.

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However, this fund may not suit ultra-conservative investors and short-term tactical investors who prefer focused exposure.

“The Motilal Oswal BSE 1000 Index Fund could be an ideal core holding for investors wanting a broad, passive exposure to India’s equity markets. However, investors should be aware that while diversification reduces certain risks, the inclusion of smallcaps and microcaps adds volatility, especially in downcycles. For those with an over 5-10-year investment horizon, it could be a smart, low-cost bet on India's economic evolution,” said Bhatt.