Motilal Oswal MOSt Shares M50 ETF – An Update

by Manshu on June 25, 2010

in ETF

Someone from Motilal Oswal AMC left a comment on my earlier post, in which I complained about insufficient information in the prospectus about the underlying index of the new ETF that Motilal is going to launch.

I think the comment is worth the attention of a full post because it tells me that I was looking at an older draft, and there is in fact a Scheme Information Document (SID) that has more details on the index calculation, and the fee structure is lower as well.

Here is the comment:

Hi,

We think you are referring to our old prospectus.

We would like to mention that the MOSt 50 Basket would be calculated based on certain parameters and the same is mentioned on Page 11 of the Scheme Information Document (SID). You could read the revised SID at: http://www.mostshares.com/Pages/downloads.aspx

Further, regarding the expense structure, pls refer page 20 of the SID where we have capped the expense structure slab wise:

For first Rs. 1,000 crores – 1.00% p.a.

For next Rs. 2,000 crores – 0.75% p.a.

Over Rs. 3,000 crores – 0.50% p.a.

Thus, the SID contains all the details regarding the MOSt 50 Basket and about the Scheme.

Hope this information is helpful to you.

Regards,
Motilal Oswal AMC

Since the comment addresses the fee structure well, let me get to the underlying index and what I could gleam from the SID.

The constituents of the MOSt 50 Basket will be Nifty stocks, and a weight will be assigned to each stock based on certain fundamental factors and prevailing price.

The basket is classified into four categories:

Name Number of Constituents Percentage Allocation
Highest Capital Allocation 2 – 5 6% to 8% for each member of this category
Second highest capital allocation 3 – 7 4% to 6% for each member of this category
Third highest capital allocation 9 – 15 2.5% to 4% for each member of this category
Lowest Capital Allocation Remaining constituents Unallocated Capital

So, there will be a few companies that will be more dominant than others based on their higher ranking according to this methodology.

Here are the factors that are used to decide the weights of the individual stocks:

1. Shareholder funds: Money raised by shareholders plus retained earnings till date.

2. Return on Equity: ROE is calculated as: Profit after tax / Average common stakeholder equity. ROE measures how well the shareholder’s equity is performing.

3. Plow Back Ratio: This is calculated as: Retained Earnings / Profit After Tax, and shows you how much earnings has been kept back with the company for its future use.

4. Stock Price: The closing price of the stock on the day of rebalancing is considered.

This index is also going to be a Total Return Capture index, which means that the index will not only consider price movements but also take into account the dividend paid out by the companies and their impact if it were re-invested.

I must say that theoretically this sounds a lot more interesting than what I found it at the first go reading the other document. Whether this works in practice will only be seen when the fund has been on the market for a few years.

And great job by Motilal Oswal for responding so quickly and pointing me to the right data source.

Source:

Documents of Motilal Oswal MOSt M50 ETF

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