Motilal Oswal Focused 25

Motilal Oswal Focused 25 Fund – Review

Motilal Oswal Focused 25 Fund comes from stable of Motilal Oswal Mutual Fund. Let’s review Motilal Oswal Focused 25 Fund today to find if its worth to invest in this fund. Some of the questions that I will try to answer are :

What is the category of Motilal Oswal Focused 25 Fund ?
How is portfolio of Motilal Oswal Focused 25 Fund?
How is performance of Motilal Oswal Focused 25 Fund?
What does risk stats tell about Motilal Oswal Focused 25 Fund?
Who is fund manager for Motilal Oswal Focused 25 Fund?
What is USP of Motilal Oswal Focused 25 Fund?
What is Tax Treatment of Motilal Oswal Focused 25 Fund?
Are there better funds than Motilal Oswal Focused 25 Fund? And finally
What is my opinion about Motilal Oswal Focused 25 Fund?
So let us get started.


Disclaimer & Disclosure

Before you read the article – a disclaimer. Please note I am not advising you on any financial decision on Motilal Oswal Focused 25 Fund. Please treat article as my personal view only. Also note currently I am NOT invested in Motilal Oswal Focused 25 Fund. With that, let us get started with review.


What is Category of Motilal Oswal Focused 25 Fund

As per SEBI guidelines, every fund falls in a category. This helps investor understand basic characteristics of that fund. It also helps compare one fund with others in same category. You can see all the categories of mutual funds here. Motilal Oswal Focused 25 Fund falls under category called Focused Fund.

What is Focused Fund Category

SEBI definition is as follows. An open ended equity scheme investing in maximum 30 stocks (mention where the scheme intends to focus, viz., multi cap, large cap, mid cap, small cap).

So what does it really means to us. This fund will be investing in limited number of stocks. Rather than investing small percentage of money in large number of stocks, this will invest large amount in small number of stocks. This is high reward and high risk approach also commonly called as focused approach.

In general suitable for aggressive investors who want to take additional risk in exchange for better returns. Let us now look at where fund invests its money or it’s portfolio.


Portfolio of Motilal Oswal Focused 25 Fund

This fund has a one of the most concentrated portfolio in the category. Taking “Focused” word too seriously. What I mean is stocks are very less (21 as I write this article). Market cap wise it is similar to Axis Focused 25 Fund where lot of weightage is to Large companies. Investment style is Growth based so looking for companies with growth potential rather than Value style which believes in buying cheap concept.

And why do I feel like this?

Let us now look at the Portfolio little more in detail. This is what ultimately decides risks and returns. Portfolio does change over time but generally investment style does not change as long as fund manager is same. Let us first start with understanding asset allocation of fund.

Asset allocation

See below table to understand asset allocation of Motilal Oswal Focused 25 Fund. Being an equity fund, most of the money will be invested in Indian stocks. As per scheme information document, minimally 65% will be in Indian Equity. So it has option to put rest 35% in debt and Money market instruments. It can also invest upto 10 % in REIT (Real Estate Investment Trust).

But that will be in rare scenario. Typically, fund would be fully invested in Indian stocks.

AssetTypical % allocation
Indian Equity90 to 100 %
Debt, Money Market instruments, Cash & Equivalent0 to 10 %

Characteristics of Equity Allocation

BenchmarkNifty 50 TRI
Market Cap
Giant companies59 %
Large companies20 %
Mid cap companies17 %
Small companies4 %
Top Sectors
Financial sector45 %
Services17 %
Healthcare14 %
Concentration
Number of Stocks21
Top 10 Stocks72 % of your money
Top 5 Stocks42 % of your money
Top 3 Sectors77 % of your money

If you see above table, you will understand the style of investment for this fund. Do not focus too much on specifics like exact percentage or exact sector but try to understand the pattern of investment style. Actual numbers may vary when you are reading the article.

First thing to note is that portfolio is very concentrated – number of stocks are least among the category. As per category objective, maximum allowable limit as per SEBI definition is 30 stocks. Here we see fund is managing all the money in almost 70% of that limit. This speaks about the confidence fund manager has with his selection. When call goes correct, this fund will reward you a lot compared to others in category. At the same time, be aware you are taking lot of risk compared to more spread out portfolio.

Another point to note is sector concentration. A rare scenario where almost 45% in a single sector and whopping 77 % in top three sectors. I think fund is really taking very bold positions. Little risky to my liking though. More than 10% in a single stock (Avenue Supermarts) is little too much. Of course this may suit very aggressive investors. This type of allocation reminds me of PMS style of stock investment.

Next important part is its benchmark. It is Nifty 50 TRI. That means predominantly large cap focus. We see around 79 % allocation in big companies and 17 % in mid cap companies. So if you are interested in taking bold positions in few Nifty 50 stocks, this is the right place.

P/B & P/E ratios

With P/E of around 33 and P/B around 4.5, this fund to me is strong pure growth oriented fund. If you too feel its better to invest in growth stories rather than buy companies when chips are down, then this should suit you.


Performance of Motilal Oswal Focused 25 Fund

Here you go. For most of investors, this is what matters. For me this is an average performer showing some signs of hope in last couple of years. I think there are better funds in same category who rewarded investors more. We need to keep a watch on this fund to see how 2020 goes. For now, I don’t have a great story to write about.

Want to know more?

Let us look at past data if it can give us some indication. Below table shows how this fund performed so far. Please note that returns mentioned are as of publishing of this article. For latest returns you can refer Moneycontrol or ValueResearchOnline websites.

Trailing Returns of Motilal Oswal Focused 25 Fund

201420152016201720182019
Fund
Returns (%)
44.245.591.1332.15-3.7817.36
Category
Returns (%)
47.42.562.931.09-6.1910.17

Table above does not say any great story. Last couple of years have been somewhat better. Especially in 2019, fund really out performed category. But if you are looking at a large picture, it has shown more or less average performance. Good part is rarely it under performed category.

Worst periodWorst Returns (%)Comments
Month-34.05Feb – Mar 20
Quarter-33.36Dec 19 – Mar 20
Year-22.98Mar 19 – Mar 20

I think all the Equity funds took a beating in 2020 Corona crisis. This fund was no exception. At the same time, we retail investors expect fund managers to act in timely manner to preserve our capital during bad time. That is why we trust our money to them. Nothing that sort of seem to have happened here so far.


Risk factors

Overall fund has better risk statistics compared to category but there is catch here. Category average may be polluted by lot of under performers. If you compare fund with better performer funds in the category, then this does not look that good. I think this is like story of an athlete coming 3 rd or 4th in a race where there are lot weak players but winner and runner ups are far ahead.

Comparison of fund risk factors v/s that of category

Standard Deviation

Standard deviation of fund tells us about how far returns have moved from its mean or average. Basically how volatile returns have been. Less volatile, better it is. This fund has standard deviation of 18.38 v/s category average of 13.5. So you can say volatility of fund will be higher than average funds in category.

Beta

Beta tells us how Fund behaves compared to its Benchmark or Index. Benchmark index is considered to have beta of 1. The closer the value of Beta of fund to 1, more closely fund likely to follow benchmark. Fund has beta of 0.88 which means it is around 88 % co related to its benchmark (Nifty 50). Since currently ( in 2020 ), we have more risk of downside, lower beta value is good as fund may fall less than benchmark.

Alpha

Alpha tells us how actually fund is creating returns over and above its expected beta value. So basically alpha tells us how Fund Manager is doing compared to Index. Higher the alpha, better the returns fund manager able to generate and worth the fee that he or she is charging. Alpha of 0.39 v/s category average of -1 (negative 1). So technically better than category but if you read my review of Axis Focused 25 Fund or SBI Focused Equity Fund, you will see they have better alpha.

Sharpe Ratio

Sharpe Ratio tells about risk adjusted returns or how much risk we are taking by investing in fund over a guaranteed return product. Fund has sharpe ratio of -0.01 compared to category average of -0.1. Again, fund has better risk adjusted returns compared to the category. But not as good as few better funds.

Other things that matter

Launch date (Age)May 2013
Assets (Rs)Around 1150 Crore
  • Around 7 years old. Still a young Mutual Fund. 2020 is first real crisis for this fund to show how it can preserve capital during downside.
  • Reasonable asset under management considering age. Not a very small fund , neither too big.

Fund Manager of Motilal Oswal Focused 25 Fund

Siddharth Bothra took over charge of fund (Equity part) at end of 2016. So he has been in saddle for over 4 years now. He has over two decades of experience in finance domain. I will not discuss about Abhiroop Mukherjee who is fund manager for debt part as this fund is not really expected to have significant debt portion. Since Mr. Bothra took over, I would say performance is reasonable. In 2017 and 2019 it has beaten the category. In 2018, it dropped less than average of Focused Fund category but if you look from Large Cap asset allocation perspective, it did not perform that well. Overall in line with category average.

More on fund manager

With experience of more than two decade and long stint with Motilal Oswal group, Mr Bothra can be considered as good fund manager. He has been in stock research for long time now and got few accolades as well. He took over charge of this fund in 2016 and I would say had a descent run. He is yet to show spectacular returns but at same time, he has made sure fund does not under perform category average. He also manages hybrid fund of Motilal Oswal AMC.


USP of Motilal Oswal Focused 25 Fund

As with any other equity fund of Motilal Oswal, this fund also believes in “Buy Right and Sit Tight”. It takes strong position in stocks that it believes in. It also believes that adding number of stocks does not necessarily add diversification. As per its presentation, 25 stocks is what it takes to achieve optimal diversification. Currently it has as less as 21 stocks in portfolio. I must say, true to its philosophy, it focuses on few quality stocks.

more...

Stock selection philosophy is based on four step investment process. Invest in business that you understand, check if economic conditions are favorable, Able and Trustworthy management and Margin of Safety. I don’t think anyone could disagree with this process. Should work out and reward investors.


You may also be interested in

As with any other category, there is no dearth of competition here as well. Review of Motilal Oswal Focused 25 Fund would be incomplete without mention of some of its peers. There are few funds which will give it run for money. Some of the funds that you should check out before investing are


Tax Treatment of Motilal Oswal Focused 25 Fund

Motilal Oswal Focused 25 Fund is treated as an Equity Fund from tax treatment perspective. So it enjoys current tax benefits.

Tax treatment of mutual funds in India
For tax purpose, a fund can be treated like an Equity Fund or Debt Fund. Note, equity schemes must invest at least 65 per cent in Indian stocks.

  • Tax on Funds coming under Equity Fund category – Long Term capital gain will be taxed at 10% on gains of over Rs 1 lakh in a financial year. If equity investments are sold before a year, the returns are treated as short-term capital gains and taxed at 15 per cent.
  • Funds coming under Debt Fund category – Long term capital gains will be taxed 20% with Indexation (if held for more than 3 year) or Short term capital gains will be taxed as per your income tax slab (if held for less than 3 years)

Please consult a CA for current tax rules and liability since there could be changes when you are reading this article.


Other useful information

You can see presentation from fund house here.
You can see Scheme Information Document or SID here.

Other details
Minimum Investment (Rs)5000/-
Minimum SIP (Rs) 500/-
Expense Ratio (%)2.24 for regular plan &
0.98 for direct plan *
Load1% **
Any Lock-in conditionNo
  • Expense ratio looks very high eating into investor returns
  • * More than 1.25% benefit in a direct plan. If you are still on regular plans, you can read my review of Kuvera and start investing in direct plans.
  • ** Exit Load of 1% if redeemed within 15 days from the date of allotment. No exit load if switched to other Equity schemes of Motilal Oswal AMC.

Verdict

My personal view is this is a fund is mixed bag. It is neither under performer nor a consistent out performer. If you are already invested in this fund, no reason to really move out. But for new investors there are few options available who seem to be better. Axis Focus 25 is better large cap based Focused fund and SBI Focused Equity Fund is better multi cap Focused fund. Both seem to be doing better than Motilal Fund. This is by no means a bad fund as such but just that risk that it is taking by having very concentrated approach has not really paid off that well.

Let us conclude review with ten point summary of Motilal Oswal Focused 25 Fund
  • Belongs to Focused Fund – Suitable for very aggressive style investors. One of the most concentrated fund in the category.
  • Style of investment seem to be Growth.
  • Asset allocation across Large and Mid cap
  • Consistent performer beating category most of the time. But failed to top the charts.
  • Better risk adjusted returns than category but not very significant difference. Standard deviation is high so be ready for volatility in returns.
  • Experienced fund manager but rather short term association with fund
  • USP of fund – Shadow of PMS style investment with aggressive positions in few stocks
  • Rather young fund and need to prove its ability in crisis. Reasonable Assets Under Management considering age.
  • Taxation benefits of Equity funds
  • No lock in but higher on expense ratio

As you can see from above list, Motilal Oswal Focused 25 Fund seem to have focus but has been average performer. If you are already invested in fund, you could continue. For new investors, I feel other better options are available.


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