Do you want to create wealth by exploring unconventional investment opportunities in addition to the traditional investments in your current portfolio?

If you have a high-risk appetite, you would be more willing to invest in equity-related instruments such as;

• Direct Equity (stock)
• Equity Mutual Funds
• International Funds
• Foreign Direct Equity

These traditional choices have a long past track record of yielding high returns.

But if you are an investor who is looking for new alternative investments to further diversify your portfolio.

Then you could have been introduced to Motilal Oswal – Next Trillion Dollar Opportunities Portfolio -Alternative Investment Fund (AIF) by your Relationship Manager.

This is different from your usual traditional investment options. 

Let us look into the AIF concept in more detail. 

Will these investments act as a diversification? 

Will these investments provide a better risk-adjusted return? 

Let’s analyse the working of AIF & performance of Motilal Oswal – Next Trillion Dollar Opportunities Portfolio. 

So, that we can make informed investment decisions.

Table of Contents:

1.) What are AIFs?

2.) What Kind of AIF is ‘Motilal Oswal – Next Trillion Dollar Opportunities Portfolio’?

3.) Features of the Motilal Oswal – Next Trillion Dollar Opportunities Portfolio

4.) What Kind of AIF is ‘Motilal Oswal – Next Trillion Dollar Opportunities Portfolio’?

5.) Features of the Motilal Oswal – Next Trillion Dollar Opportunities Portfolio

6.) Investment Strategy of the Motilal Oswal – Next Trillion Dollar Opportunities
Portfolio

7.) The current portfolio of Motilal Oswal – Next Trillion Dollar Opportunities Portfolio

8.) Fees Structure of the Motilal Oswal – Next Trillion Dollar Opportunities Portfolio

9.) Performance of Motilal Oswal – Next Trillion Dollar Opportunities Portfolio

10.) Comparison of Motilal Oswal – Next Trillion Dollar Opportunities Portfolio with Mutual fund returns

11.) Taxation of the Motilal Oswal – Next Trillion Dollar Opportunities Portfolio

12.) Triple Filter Test for Motilal Oswal – Next Trillion Dollar Opportunities Portfolio

13.) Final Verdict

Before we review Motilal Oswal – Next Trillion Dollar Opportunities Portfolio, let us first understand what exactly Alternative Investments are.

What are AIFs? 

AIF pools funds from investors and invests in Private Equity, Venture Capital, Hedge funds, Managed funds, etc. Whichever the fund manager sees fit.

As per SEBI regulations, there are 3 categories of AIFs in India.

• Category I AIF
• Category II AIF 
• Category III AIF

The AIF Fund Managers register their fund in one of these categories based on the fund’s investment policy specified by the fund manager. 

Generally, High Net Worth Individuals (HNI) & Institutions invest in AIF as it needs huge investment. 

The Minimum ticket size is Rs. 1 crore (Angel Fund is Rs. 25 lakhs). 

The funds are generally raised through a private invitation to sophisticated investors. 

What Kind of AIF is ‘Motilal Oswal – Next Trillion Dollar Opportunities Portfolio’? 

Motilal Oswal – Next Trillion Dollar Opportunities Portfolio comes under the category III AIF. 

Before getting into the features of this investment product, let us first look into the features of Category III funds. 

General regulations for category III AIF are as follows

• The Minimum Ticket size is Rs. 1 crore.
• It can be either an open-ended or a close-ended fund.
• The Minimum corpus size is Rs. 20 crores.
• It can leverage positions up to 2 times the total fund corpus.
• It is not mandatory to make their earnings report public on a regular time interval.
• As an investor, you do not have to worry about the taxation rules as these funds are taxable at the fund level.

Features of the Motilal Oswal – Next Trillion Dollar Opportunities Portfolio:

The table below shows the features of Motilal Oswal – Next Trillion Dollar Opportunities Portfolio AIF. 

Name of the Scheme	Next Trillion Dollar Opportunities Portfolio
Governed by	Motilal Oswal Financial Services Ltd.
Fund manager	Mr Manish Sonthalia
Inception	03-08-2007
Type	Open-ended
Investment horizon	Medium to long term
No. of stocks	20 -25
Market cap	Multi cap
	Predominantly in Large & Midcap
Sector Allocation	35% or as per benchmark
Scrip Allocation	Not more than 10% in Single stock
Investment Strategy	Quality, Growth, Longevity & Price
	Bottom-Up Approach
Bench Mark Index	Nifty 500 TRI

From an investor’s point of view, the minimum investment required probably is the one to be first considered before all the other features. 

It is not only ‘Motilal Oswal Next Trillion Dollar Opportunities Portfolio’ but all AIFs require a minimum of ₹1 Crore investment which makes it obvious that ‘Motilal Oswal Next Trillion Dollar Opportunities Portfolio’ is not an investment product for everyone. 

You may also have noticed that the fund has Nifty 500 TRI as its benchmark. 

Motilal Oswal Next Trillion Dollar Opportunities Portfolio predominantly invests in emerging large & mid-cap stocks. 

Its investment strategy aims to invest in focused companies, which are part of the next trillion-dollar GDP growth opportunity.

But since this is an unconventional investment product, there is more to Motilal Oswal – Next Trillion Dollar Opportunities Portfolio’s investment strategy. 

Now let us take a look at Motilal Oswal Next Trillion Dollar Opportunities Portfolio by reviewing its investment strategy, current Portfolio, fee structure, and its performance one by one.

Investment Strategy of the Motilal Oswal – Next Trillion Dollar Opportunities Portfolio:

The investment strategy of OS – NTDOP is QGLP:

• Quality
• Growth
• Longevity
• Price

The following points give you an idea of the above strategy.

• It strongly believes in long-term investing.
• The low churning of stocks & lower cost enhance the return.
• Identifying companies that have the potential to create wealth in long run.
• Focusing on limited companies ranging from 25 to 30.
• Maintain a balance between Growth & Value picks.
• Investing in companies that are likely to earn 20 -25 % on their net worth going forward.

The Current portfolio of Motilal Oswal – Next Trillion Dollar Opportunities Portfolio:

Motilal Oswal – Next Trillion Dollar Opportunities Portfolio follows the QGLP Strategy as mentioned above to curate their portfolio by choosing stocks that will deliver better returns in the long run. By using this strategy, it has built a portfolio with 25 – 30 stocks on average at all times. 

The following table shows the current sectoral allocation as on 31 August 2022.

Top 10 Sectorial Holdings
Sector	%
Banking Financial Services	23.71%
Pharma & Biotechnology	8.14%
IT – Software	7.43%
Textile & Apparel	7.23%
IT – Services	6.13%
Consumer durables	5.46%
Automobile	5.35%
Industrial product	4.58%
Diversified FMCG	4.10%

From the above table, it is easy to note that the majority of the sectoral allocation belongs to the banking sector as the allocation comes at around 23.71%

Top 10 Holdings
Scrip Name	%
ICICI Bank Ltd	12.20
Kotak Mahindra Bank Ltd	8.27
Page Industries Ltd	7.23
L&T Technology Services Ltd	6.18
Voltas Ltd	5.46
Eicher Motors Ltd	5.35
Max Financial Services Ltd	5.18
ITC Ltd	4.10
Tech Mahindra Ltd	3.79
Gland Pharma Ltd	3.56

The first 2 spots in the top 10 holdings also belong to the banking sector which is ICICI Bank Ltd. And Kotak Mahindra Bank Ltd. Respectively.

Market Cap:

Market Cap	%
Mid cap	51.5%
Large-cap	45.2%
Small cap	3.4%
cash	-0.1%

         

As mentioned before, this PMS product pre-dominantly invests in the Mid-cap and Large-cap funds, and its allocation amounts to 51.5% and 45.2% respectively.

It’s easier to analyse whether this Investment product can give us better returns by understanding their portfolio in detail.

Now let us uncover the fee structure present for this product.

Fees Structure of the Motilal Oswal – Next Trillion Dollar Opportunities Portfolio:

The following table clearly shows the various fees charged under the fund.

Management Fee	Fixed – Ranges from 1.50% to 2.50%
Hurdle rate	NIL
Set up fees	Up to 2% on capital contribution
Exit load – from the Allotment date	Up to 6 months – 4% 6 – 12 Months – 3% 12 – 24 months – 2%
	24 – 36 months – 1%

Management fee:

Class	Capital Commitment	Management fee (Fixed)
B1	1Cr < 2.5 Cr	2.50%
B2	>= 2.5 Cr < 5 Cr	2.25%
B3	>= 5 Cr < 10 Cr	2.00%
B4	>= 10 Cr < 25 Cr	1.75%
B5	>= 25 Cr	1.50%

Depending upon the lumpsum investment amount the investor invests in, a fixed management fee is charged ranging from 1.5% to 2.5%. 

In addition, it has an initial setup charge with a cap of 2%. 

There is no hurdle rate. Hurdle rate refers to the rate of return, which the fund manager must beat before collecting any fee. 

But such a hurdle rate is missing in this fund.

The hurdle rate in AIFs is like a threshold for the fund manager to deduct the Carry Fee.

For example, ‘Motilal Oswal – Next Trillion Dollar Opportunities Portfolio’ will charge 10% of the profits from the fund as the Carry Fee. 

If it had a Hurdle rate of, say 12%, the fund manager can deduct the Carry Fee of 10% only if the fund generates a return of 10% or above. 

Since the ‘Motilal Oswal – Next Trillion Dollar Opportunities Portfolio’ has no Hurdle Rate, the fund manager will continue to deduct the Carry Fee—regardless of whether the fund generates a 2% return or a 12% return. 

In this context, the zero Asset Management Fee may not be as attractive as it looks.

You can read about the Motilal Oswal – Next Trillion Dollar Opportunities Portfolio’s brochure for further details.

Performance of Motilal Oswal – Next Trillion Dollar Opportunities Portfolio:

The Benchmark Index for Motilal Oswal – Next Trillion Dollar Opportunities Portfolio is Nifty 500 TRI. 

The following is the periodic return (CAGR) of Motilal Oswal – Next Trillion Dollar Opportunities Portfolio in both the long term & Short term. 

The data is as on 31 July 2022.

Fund	1 Year	2 Year	3 Year	4 Year	5 Year	Since Inception
NTDOP	-0.96%	23.79%	14.59%	7.10%	7.70%	14.95%
Nifty 500 TRI	8.63%	28.87%	18.79%	12.29%	12.04%	10.92%

From analysing the return over the past five years, it is clear that the fund has been able to outperform the index only in the long run.

 So, investors can only reap the benefits if they consider investing in the Motilal Oswal – Next Trillion Dollar Opportunities Portfolio for the long term.

Comparison of Motilal Oswal – Next Trillion Dollar Opportunities Portfolio with Mutual fund returns: 

Investing in the AIF ‘Motilal Oswal – Next Trillion Dollar Opportunities Portfolio is similar to investing in Equity Mutual funds. 

So, we can do a comparison of whether the alpha investing in Motilal Oswal – Next Trillion Dollar Opportunities Portfolio is better and whether the risk & return are proportionate. 

First, let’s look at some of the important category returns of some equity mutual funds to get an overall idea.

	1 year	3 years	5 years	Since Inception
Equity: Multi Cap	6.7	23.5	14.24	12.82
Equity: Flexi Cap	4.1	19.96	12.03	13.46
Equity: Large Cap	2.93	17.41	11.07	13.51
Equity: Large and Mid-Cap	5.54	21.57	12.27	16.39
Equity: Mid Cap	7.77	27.12	13.61	16.71
Equity: Small Cap	9.92	33.28	14.97	20.16

The above table depicts the risk & return associated with each category under the Equity category. 

Now let us look into specific fund returns. This will help us to have a greater insight into the performance of Motilal Oswal – Next Trillion Dollar Opportunities Portfolio. 

Period	Canara Robeco Blue-chip Equity		Axis Midcap		SBI Small Cap	Parag Parikh Flexi Cap	Mahindra Manulife Multi Cap Badhat Yojana	NTDOP	Nifty 500 TRI
1 Year	2.082	3.3705		20.0309		1.8398	9.1846	-0.96%	8.63%
2 Years	25.553	31.1636		41.3377		28.037	38.7367	23.79%	28.87%
3 Years	22.0342	27.4361		34.8741		26.3688	29.0896	14.59%	18.79%
4 Years	16.1526	19.2435		22.2922		19.4611	20.3838	7.10%	12.29%
5 Years	15.2793	18.8687		20.7085		18.801	17.1453	7.70%	12.04%
Since Inception	15.1108	19.9202		27.1663		19.57	17.5855	14.95%	10.92%

By analysing the above table, we can understand the returns of Motilal Oswal  – Next Trillion Dollar Opportunities Portfolio is similar to any large-cap fund. 

But the risk, fee structure, and transparency in the operation of Motilal Oswal – Next Trillion Dollar Opportunities Portfolio is nowhere comparable with the mutual fund schemes. 
The return is not proportionate to the degree of risk undertaken. 

Taxation of the Motilal Oswal – Next Trillion Dollar Opportunities Portfolio:

The returns stated above are post-tax returns. This category of funds is taxable at the fund level. This has no pass-through status. 

The highest rate of tax (as per the current tax slab) is charged on the profit made by this fund. 

The tax is discharged by the fund on behalf of the investors. So, investors do not have to pay additional taxes separately.

Tax on both realized and unrealized gains is factored in the NAV on an ongoing basis. Thus, it is a post-tax post-management fee NAV.

The rate at which a Cat III fund pays tax on each of these types of income is explained in the table below: (As per Budget of FY 2021-22)

Nature of Income earned by the Fund	Period	Maximum Marginal Rate (MMR)
Short Term Capital gains	Up to 12 months	17.94%
Long Term Capital gains	> 12 months	11.96%
Dividend Income	–	35.88%
Unlisted – Long Term Capital gains	> 24 months	28.50%
Unlisted – Short Term Capital gains	Up to 24 months	42.74%
Unlisted becoming listed	As per listed	Criteria same as a listed security

Triple Filter Test for Motilal Oswal – Next Trillion Dollar Opportunities Portfolio:

If you are an HNI or a UHNI investor, then Motilal Oswal – Next Trillion Dollar Opportunities Portfolio will be a tempting investment product for you.

But before investing, it is important to do proper research as we shouldn’t jump into this blindly just by the return of AIF even if it seems convincing enough to invest.

“Never test the depth of the river with both your feet.”

 Be it the ‘Motilal Oswal – Next Trillion Dollar Opportunities Portfolio’ or any other investment instrument, you can test their quality by putting them through 3 tests or filters. 

These 3 filters are only 3 simple questions directed towards the investment product in consideration—in this case, ‘Motilal Oswal – Next Trillion Dollar Opportunities Portfolio’. 

If ‘Motilal Oswal – Next Trillion Dollar Opportunities Portfolio’ successfully passes these filters, you can, with a degree of certainty, add this fund to your investment portfolio. 

So, let us begin. 

Filter 1: Is the ‘Motilal Oswal – Next Trillion Dollar Opportunities Portfolio’ well regulated?

The Securities and Exchange Board of India (SEBI) regulates the Alternative Investment Funds (AIF) in India. 

AIFs are defined in the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012. 

The AIF Regulations regulate the registration, operation, and winding up of the AIFs. The AIF must comply with the reporting requirements as stated by the SEBI from time to time. 

The AIF must intimate any material changes to SEBI within a reasonable time. 

SEBI just registers & regulates the norms. As per the AIF Regulations, the AIF, by itself or through its manager or sponsor is required to specify the procedure for dispute resolution arising between the investors, AIF, manager, or sponsor.

However, ‘Motilal Oswal – Next Trillion Dollar Opportunities Portfolio’ is not supervised or regulated by the stringent rules of SEBI as it is with equity mutual funds. 

Hence, at best, ‘Motilal Oswal – Next Trillion Dollar Opportunities Portfolio’ is a SEBI registered investment product but as a class product, it has less transparency and no stringent regulation when compared to a Mutual Fund product.

Filter 2: Does the ‘Motilal Oswal – Next Trillion Dollar Opportunities Portfolio’ have a Good Track Record?

Motilal Oswal – Next Trillion Dollar Opportunities Portfolio;

• Has a track record of 15 years.
• Has generated alpha in the long run.
• Has consistently followed the investment strategy.
• The performance in the short run is not satisfactory.
• By looking into the return, it clearly shows that it could not outperform the index in the short run.

‘Motilal Oswal – Next Trillion Dollar Opportunities Portfolio’ has delivered a return of 14.95% over the past 2 years. And it has outperformed its benchmark by a good margin. 

If you compare the same to Equity Mutual Funds which has delivered returns up to 20% over the years through various funds such as Small, Mid, and Large-cap.

Hence it is still too early to conclude that ‘Motilal Oswal – Next Trillion Dollar Opportunities Portfolio’ is a good fund. And it will be unwise for any investor to say otherwise without risking loss and regret. 

Filter 3: Is the ‘Motilal Oswal – Next Trillion Dollar Opportunities Portfolio simple and transparent?

A Private Placement Memorandum (PPM) is prepared with key information. This PPM is not available to the general public.

It is offered for Institutions & HNIs. Very little data is shared by AIFs in the reporting system. 

There is no consolidated data available for investors. Only large institutional investors have greater access to the fund information than individual investors do. 

Motilal Oswal – Next Trillion Dollar Opportunities Portfolio also lacks transparency & has a complicated working procedure.

Whereas Equity Mutual Funds have complete transparency which makes it safe for the investor to invest.

Final Verdict:

By diving deep and analysing from all angles, we can observe that;

Motilal Oswal – Next Trillion Dollar Opportunities Portfolio category III AIF has:

• strong investment strategy with a high concentration of large & mid-cap stocks, 
• little complex fee structure and 
• Moderate return. 

As per our assessment, ‘Motilal Oswal – Next Trillion Dollar Opportunities Portfolio’ has not passed the fundamental triple filter test.

It is a complicated product made for sophisticated investors. It lacks the transparency that any rational investor desires.

And the fact that ‘Motilal Oswal – Next Trillion Dollar Opportunities Portfolio’ is only partially regulated, makes it even more undesirable to a retail investor. 

Moreover, the ₹1 Crore minimum investment is not an insignificant amount to an investor by any degree.  

Exposing a huge capital to a not stringently regulated investment approach could make this risk two-fold or even higher for the investor.  

Motilal Oswal – Next Trillion Dollar Opportunities Portfolio is a viable alternative only for those seeking high return/high-risk vehicles. 

Unless you really understand the ins & outs of how they work, stick to conventional investment vehicles.

Do not opt for this type of investment in the hopes of diversifying your portfolio. Because Portfolio diversification should be done only to reduce the risk.

Investing in AIF will only increase your portfolio risk.

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