Motilal Oswal NASDAQ 100

Common aspects:

1. Both are India-domiciled mutual fund schemes that allow you to take exposure to Nasdaq 100 index. You get to invest in India in INR, but the end-portfolio consists of Nasdaq 100 stocks.

2. Pains of foreign investments (taxation, currency transfer, foreign KYC etc.) are all abstracted for you, and yet you do track the returns of Nasdaq 100 in USD, overlayed with returns of USD in INR

3. These are Foreign category funds, and hence treated similar to debt investments, from a taxation perspective. (short-term <3 years, long-term beyond 3 years, STCG taxed at marginal rate, LTCG at 20% after indexation.

4. As these are mutual fund schemes, they have their own Expense ratios that cover fund management charges etc.

Different aspects::

ETF:

1. MO Nasdaq 100 ETF is an exchange-traded-fund, investing in Nasdaq 100 stocks.

2. Meaning, it can only be bought or sold via exchanges (NSE/BSE) and held in Demat form. So you must have a demat account.

3. So all the associated costs (demat charges, brokerage etc.) would apply. You can buy only via brokers, so you need a brokerage account.

4. Transactions would occur at any time during India market hours, and the prices may vary during a session.

5. It invests in the Nasdaq 100 stocks and hence has an NAV. However, similar to other ETFs or stocks, its actual transaction price depends upon demand/supply and hence may vary from its inherent NAV. (In fact, wide variation has been observed in practice.)

6. Similar to all ETFs, as practically all the transactions happen in secondary market, liquidity becomes an additional factor to account for. (Market makers are usually ineffective in India.) It affects prices per 5 above.

7. SIP investments are somewhat difficult and if available, have to happen in full units (i.e. not necessarily in amounts like Rs. 500, 1000 etc.). STP into or SWP from this ETF is not possible.

FoF:

1. MO Nasdaq 100 FoF is a fund of funds. It is therefore like a classic mutual fund scheme, which invests in the MO Nasdaq 100 ETFs as its portfolio holding.

2. It can be held in Demat form (similar to other MF units), but can also be transacted into via folios without having a demat account (again similar to other MF units),

3. Transactions occur directly with AMC or via distributor with AMC, and you may have to bear corresponding charges, if any. You can use any mutual fund transaction options (offline/online distributor, transaction portals or apps of third parties or AMC etc.) and may avoid any transaction charges completely.

4. Transactions occur at a day’s NAV, per cut-off time rules, similar to other MF schemes.

5. Since it is an FoF, it is expected that its transactions of ETF units would occur directly with the AMC, and hence should occur at the NAV of the ETF (as against market price of ETF.) I don’t have a strong corroboration of this fact, but it can be seen from the scheme performance. If so, this may work strongly in favour of FoF, since you are not at the receiving end of NAV-price divergence similar to the underlying ETF.

6. As investors buy and sell from AMC (not other investors), liquidity is not a concern at all. AMC is bound to offer purchase or redemption during normal circumstances.

7. SIP, STP, SWP are possible as it is a mutual fund scheme,

8. it has its own Expense ratio, that is incremental to the expense ratio of the underlying ETFs.

Bottom-line: In all likelihood, you would find FoF to serve you better for most of your purposes.

Written by: 4thinker (Published with permission)