Motilal Oswal Nifty Microcap 250 Index Fund garners Rs 120 crore during NFO period

Motilal Oswal Nifty Microcap 250 Index, which is India’s first passive scheme specifically focussed on this market-cap category, has collected more than Rs 120 crore during its new fund offer (NFO) period from more than 26,000 investors.

The NFO period of the scheme commenced on June 15 and closed on June 29. The fund managers to the scheme are Swapnil Mayekar and Rakesh Shetty (for debt component).

Motilal Oswal Nifty Microcap 250 Index Fund, which mimics the Nifty Microcap 250 Index, is designed to measure the performance of the top 250 companies, excluding those already present in the Nifty 500 constituents.

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According to the Securities and Exchange Board of India’s (SEBI) classification, the top 100 listed companies constitute largecaps, those ranked 101-250 are midcaps and those in the 251-500 spots are smallcaps. The rest, around 4,000 to 5,000, are microcaps.

The top five constituents by weightage in the Nifty Microcap 250 Index are Religare Enterprises (1.53 percent), Karnataka Bank (1.40 percent), Ujjivan Financial Services (1.30 percent), Procter & Gamble Health (1.23 percent) and Reliance Power (1.07 percent).

In terms of sectoral weightage, the top five sectors are Capital Goods (19.52 percent), Financial Services (13.08 percent), Healthcare (9.90 percent), Chemicals (7.57 percent) and Construction (6.66 percent).

The index is well-diversified with its top 10 holdings accounting for only 11 percent as against 59 percent in the Nifty 50 Index.

Over the last three years, the Nifty Microcap 250 Index has delivered 58 percent returns on an annualised basis, which beats the returns delivered by the Nifty 50 (26 percent) and the Nifty Smallcap 250 index (42 percent).

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While Motilal Oswal Nifty Microcap 250 Index is the first passive scheme offering exposure to microcap stocks by investing in companies from the 501st to 750th spot in terms of market capitalisation, there are existing funds that invest in microcap stocks.

For example, Nippon India Small Cap has an exposure worth Rs 8,162 crore in microcap stocks. HDFC Small Cap has invested Rs 4,981 crore in this category.

Incidentally, Nippon India Life Asset Management on July 6 announced that it will not accept lump sum investments into Nippon India Small Cap Fund from July 7.

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Note that historically drawdowns in microcaps are longer than in smallcaps and largecaps. Also, this set of stocks is also much more volatile than smallcap or Nifty 50 stocks.

From an overall perspective, a large-cap or a flexi-cap fund is sufficient in terms of portfolio diversification for most retail investors. Also, there are many active smallcap funds available in the market for investors with higher risk profiles.