Why ULIP mis-selling has become rampant ?

It seems with the market’s ‘Bullish Trend,’ the fund houses are riding on the significant opportunities with introducing new funds that can provide investors with more ‘Reduced Portfolio Volatility’. Motilal Oswal Asset Management Company Limited (MOAMC) has launched the Motilal Oswal 5 Year G-sec Fund of Funds (FoFs). This fund is launched in response to increasing demand from investors without demat or trading accounts. With a low correlation to stocks, this Fund of Funds is perfect for investors seeking capital preservation while minimising portfolio volatility.

FoFs invest in mutual fund schemes managed by their own fund house or by competitors’ fund houses. There are two distinct types of fund of funds available. FoFs in the first category invests in domestic funds. The second type of FoFs invests in funds managed by foreign fund companies registered in overseas markets. On an average of one year return, the FoFs has given a return of over 15%. (See the table below)

Investment strategy

Known for establishing a diverse range of passive funds, this low-cost open-ended fund of funds will invest in Motilal Oswal 5 Year G-Sec ETF units. Motilal Oswal AMC’s total assets under management for passive fund schemes stood at Rs 12,100 crores (August 2021).

The fund aims to generate investment return through investments in units of Motilal Oswal 5-year G-sec ETF. “The underlying G-Sec is one of the most liquid security with a cushioning of ‘No default’ risk,” said Pratik Oswal, Head of Passive Funds, Motilal Oswal Asset Management Company. “Given the duration of nifty five years benchmark G-Sec index, it falls in the sweet spot between short and long duration G-Sec,” he added.

Management views

With no lock-in period, indexation, and historically higher pre-and post-tax returns than fixed-income investments, the Nifty 5-year benchmark G-Sec indexes can be an attractive alternative to standard fixed-income investments.

“The launch of Motilal Oswal 5 Year G-Sec Fund of Fund is in response to growing demand from investors who do not have demat or trading accounts. With low correlation to equities, this Fund of Fund is ideal for investors looking for capital preservation with reduced portfolio volatility,” said Navin Agarwal, MD & CEO, Motilal Oswal Asset Management Company.

What should investors know?

-During the NFO period, the minimum application amount is Rs.500. Investors may purchase/redeem units on a continual basis.

-The recommended annual total expense ratio for a regular plan fund of fund is 0.10 %, while the annual total expense ratio for a direct plan fund of fund is 0.03 %.

-This fund would be which is taxed similarly to a debt plan. If the investment is held for more than three years, it is eligible for long-term capital gains tax at a rate of 20%, with the option of indexation. Any investment with a time horizon of less than three years is subject to the short-term capital gains tax and is taxed at the applicable tax bracket.

-The fund falls under the ‘Moderate’ risk category, and investors should consult their financial advisors to understand the product suitability.