Equity markets have been volatile lately due to a host of domestic and international macro and microeconomic factors. If you notice the graph given below, Smallcap index has had a drastic fall but Largecap index and Midcap index have managed to sustain through the headwinds over a year.

Graph: Movement of Indices

Data as on October 3, 2019
(Source: ACE, MF)

Looking at the current market sentiment, several fund houses are of the view that when largecap space and midcap space are combined, one gets an opportunity to invest in stability of largecaps and high growth potential of midcaps. Hence even Motilal Oswal Mutual Fund launched Motilal Oswal Large and Midcap Fund (MOLMF).

The fund house is of the view that Large caps consists of blue-chip companies, usually, market leaders that have established track record and they keep getting better and bigger with less volatility involved. Whereas midcap companies appreciate into large cap stocks over long term. Hence a large and midcap fund can provide better risk-adjusted returns.

Image: Combination of stability and growth

(Source: Motilal Oswal Large and Midcap Fund Presentation)

Being an equity scheme, Motilal Oswal Large and Midcap Fund has high risk. But it is placed below Mid, Small Cap and Thematic funds on the risk-return spectrum. Hence, it is considered to be the safest among equity funds after the large-cap funds.

[Read: Why Comparing Returns to Risk Is More Meaningful!]

So, MOLMF will follow the asset allocation limits to allocate its assets between 35% to 65% investment in equity & equity related instruments of large-cap and mid-cap companies each. The fund may also allocate utmost 30% of its assets to equities and equity-related securities of other than large cap and mid-cap companies with the remaining allocation to debt instruments and money market instruments

Thus, when you plan for long-term goals, want the stability of large-caps along with the agility of mid-caps in the journey of wealth creation and accomplishing financial goals and if you have the stomach for moderately high risk, you may skew your equity portfolio to a Large & Mid-cap fund.

Table 1:  Details of MOLMF

Type An open-ended equity scheme investing in both largecap and mid-cap stocks Category Large and Midcap Fund
Investment Objective To provide medium to long-term capital appreciation by investing primarily in Large and Midcap stocks.

However, there can be no assurance or guarantee that the investment objective of the Scheme would be achieved.
Min. Investment Rs 500 and in multiples of Re 1 thereafter Face Value Rs 10 per unit
Plans • Regular

• Direct
Options • Growth*

• Dividend (Pay-out and Reinvestment)

*Default option
Entry Load Nil Exit Load 1% – If redeemed on or before 15 days from the date of allotment.

Nil – If redeemed after 15 days from the date of allotment.
Fund Manager Mr Aditya Khemani (Equity) and Mr Abhiroop Mukherjee (Debt) Benchmark Index BSE 200 TRI
Issue Opens September 27, 2019 Issue Closes: October 11, 2019

(Source: Scheme Information Document)

How will the scheme allocate its assets?

Under normal circumstances, it is anticipated that the asset allocation of MOLMF will be as follows:

Table 2: MOLMF ‘s Asset Allocation

Instruments Indicative Allocation
(% of Total Assets)
Risk Profile
Minimum Maximum
Equity and Equity related instruments of Large-cap companies 35 65 Medium to High
Equity and Equity related instruments of Mid-cap companies 35 65 Medium to High
Equity and Equity related instruments of other than above 0 30 Medium to High
Units of liquid/ debt schemes, Debt, Money Market Instruments, G-Secs, Cash and Cash at call, etc. 0 30 Low to Medium
Units issued by REITs and InvITs 0 10 Medium to High

(Source: Scheme Information Document)

What will be the Investment Strategy?

The investment objective of Motilal Oswal Large and Midcap Fund is to generate returns by investing in a combined portfolio of equity and equity-related instruments including derivatives, debt instruments, money market instruments, REITs and InvITs.

Equity Investment: The MOLMF will follow an active investment style using bottom-up stock picking. The fund managers shall identify and invest in shares of businesses run by high-quality management & having sustainable and scalable business models. They shall invest in shares of high-quality businesses having sustainable and scalable business models thus using QGLP (Quality, Growth, Longevity & Price) as the key evaluation parameters.

The businesses should have strong earnings growth prospects and be available at reasonable valuations. The scheme’s portfolio shall comprise of high conviction stock ideas from across market-capitalization levels/sectors. The portfolio stocks may be potentially concentrated in a few market capitalization levels/sectors which are expected to do well and have lower downside risk.

Debt and Money Market: The MOLMF will invest in debt instruments including Government Securities, Corporate Debt, Other debt instruments and Money Market Instruments with average maturity less than equal to 12 months to protect the portfolio downside during a market downturn.

Who will manage MOLMF?

The equity portion of Motilal Oswal Large and Mid-cap Fund will be managed Mr Aditya Khemani and Mr Abhiroop Mukherjee will manage the debt portion.

Mr Aditya Khemani has overall 14 years of experience in the Indian equity markets as an investment professional, out of which the last 10 has been in the role of a portfolio manager. Prior to joining Motilal Oswal Asset Management Company Ltd in September 2019, he was associated with HSBC AMC for nearly 12 years. Further, he has worked in esteemed organizations like SBI Mutual Fund, ICICI Prudential AMC and Morgan Stanley Advantage Services.

Currently, Mr Khemani manages Motilal Oswal Long Term Equity Fund.

Mr Abhiroop Mukherjee is the Associate Vice President – Fixed Income at Motilal Oswal Asset Management Company Ltd. He has a BCom(Honours) and PGDM  in Finance to his credit. He has over 10 years of experience in the Fixed Income Securities trading and fund management. Prior to joining the fund house, he worked as an Assistant Vice President of Fixed Income at PNB Gilts Ltd for 5 years

Currently, Mr Mukherjee manages the debt component at the fund house that includes: Motilal Oswal Ultra Short -Term Fund, Motilal Oswal Midcap 30 Fund, Motilal Oswal Multicap 35 Fund Motilal Oswal Long-Term Equity Fund and Motilal Oswal Dynamic Fund

The outlook for Motilal Oswal Large and Midcap Fund:

Motilal Oswal Large and Midcap Fund will be actively managed by the fund managers to achieve the stated investment objective of the scheme of capital appreciation over medium to long term investment horizon by investing primarily in Large and Midcap stocks.

As per the presentation, the investment philosophy is centred on, ‘Buy Right: Sit Tight’ principle.

  • Buy right consist of Quality of business, Growth in earnings & sustained ROE, Longevity of the competitive advantage or economic moat of the business and the approach of buying a good business for a Fair Price.

  • Sit tight includes the strict Buy and Hold philosophy, wherein picking the right businesses will need skill and holding onto these businesses to enable investors to benefit from the entire growth cycle needs even more skill. And for that the focus of the portfolios will be on high conviction portfolios of around 25 stocks. It will be in adequate diversification as over-diversification results in diluting returns for the investors and adding market risk.

So, the performance of the Motilal Oswal Large and Midcap Fund relies on the construction of the portfolio. How the fund managers will construct the portfolio, amidst the extreme turbulence, as constructing the portfolio would not be easy and may inflict high-risk.

As India Inc. earnings have been muted so far and valuations don’t justify the earnings. The trail P/E of the S&P BSE Sensex and the large-cap index is currently at 27x and 25x. Likewise, even in the mid-cap space, after some correction, the P/E multiple is at 25.51x.

Thus, investors need to invest cautiously without compromising on long-term growth. So, a Large and Midcap fund is suitable for the investors who are looking for stability and growth over the long term of more than 5 years can allocate some portion to Motilal Oswal Large and Midcap scheme, provided if an investor is ready for moderately high risk.

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