The Motilal Oswal Nifty Microcap 250 Index Fund, a new class of open-ended equity-index mutual fund scheme for investors, will soon go on sale. NSE defines micro-caps as the 250 businesses that fall outside the top 500 (Nifty 500). Micro-caps only make up around 3% of the overall market size, whereas the market capitalization coverage for large-caps is roughly 66%, followed by mid-caps and small-caps at 17% and 9%, respectively. 

The fund will be managed by Swapnil Mayekar and Rakesh Shetty (for the debt component). The minimum application amount for systematic investment plans (SIP) and lump sum payments is 500 rupees, with subsequent multiples of 1 rupee.

The 250 stocks above the Nifty 500 are categorised as micro-cap stocks, which are below big, medium, and small-cap companies. The index accounts for around 2.9% of the total market value of all the listed stocks on the NSE. 

Subject to tracking error, the programme will offer returns that, before expenses, match the total returns of the stocks as represented by the Nifty Microcap 250 Total Return Index. The new fund offer will end on June 29 after the scheme opens on June 15.

This fund will be managed by Motilal Oswal AMC, which currently oversees 10 active funds with a combined AUM of about Rs 20,000 crore. While the AMC oversees a total AUM of about Rs 15,000 crore for each of the following: PMS, AIFs (Alternates), and Index-based mutual funds.

Only 4% of the AUM of the mutual fund industry, per the Motilal Oswal research, is allocated to stocks outside the Top 500 businesses. Therefore, restricted mutual fund involvement presents a chance for potential mispricing in the micro-cap market.

Small- and large-cap stocks have typically experienced drawdowns more slowly than micro-caps. Additionally, although carrying significantly higher risk than their larger counterparts, small businesses have consistently offered higher profits. The micro-cap fund is a new category for investors to invest in through mutual fund products, according to Amol Joshi, the founder of Plan Rupee Investment Services.

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