Why Invest in Motilal Oswal Business Cycle Fund?

Ride the Business Cycle: Motilal Oswal Business Cycle Fund

The stock market is often described as ‘unpredictable’ and ‘dynamic’ because it is always undergoing some change. Nevertheless, one can categorise this dynamic nature of the stock market as cyclical. It is continually experiencing periods of expansion and contraction. This rhythmic pattern is known as the ‘business cycle’, which presents unique investment opportunities for those who can identify and capitalise on these trends. The Motilal Oswal Business Cycle Fund is designed to do just that.

Business cycle investing is a strategy that aims to capitalise on these cycles by investing in companies likely to perform well in the current phase of the economy. The Motilal Oswal Business Cycle Fund seeks to harness this opportunity by investing in equity and equity-related instruments of companies across different sectors and market capitalizations.

Understanding Business Cycles

A business cycle typically consists of four distinct phases, which are

1. Expansion
2.  Peak
3.  Contraction
4.  Trough

Let us understand them more elaborately, 

• During an expansion, economic activities often  accelerate, which leads to an increase in corporate earnings and a rise in stock prices. On the other hand, during a contraction phase an economic slowdown is witnessed, which impacts corporate profits and stock valuations.
• The performance of different industries varies significantly across these phases. Factors such as inflation, employment rates, and capacity utilisation influence which sectors thrive and which struggle during each cycle.

By identifying and investing in companies poised to benefit from the current phase of the business cycle, investors stand a chance at potentially enhancing returns and mitigating risks.

Introducing the Motilal Oswal Business Cycle Fund

The Motilal Oswal Business Cycle Fund aims to capitalise on the cyclical nature of the economy by investing in a focused portfolio of up to 30 stocks. The investment philosophy centres on:

• Identifying High-Growth Themes: the investing team meticulously selects stocks based on high-conviction sectors that align with the prevailing economic conditions. The fund focuses on identifying sectors and companies that are likely to thrive during the expansion phase of the business cycle.
• Timely Sector Rotation: the portfolio is actively adjusted to capitalise on emerging opportunities and mitigate risks. The fund will allocate investments across different sectors to capitalise on changing market conditions. 
• Delivering Superior Returns: By harnessing the power of business cycle investing, it is possible to generate wealth that outperforms the expected benchmark.The fund seeks to benefit from India’s transition from a vicious to a virtuous economic cycle.

Government Initiatives for Good Performance of a Business Cycle Fund

As explained earlier, a business cycle is an economic phenomenon which is cyclical in nature, thus each stage will follow the next at some point in time. Here, it is important to note that schemes and implementations can only accentuate and boost performance or growth in some areas, and not completely mitigate any associated risks and downturns. Some schemes that boost this performance include: 

• Make in India

The Make in India scheme aims to create a favourable environment for domestic and foreign investment. It focuses on infrastructure development, regulatory ease, skill development, and fiscal incentives. This has already attracted a significant amount of international investment and can boost the performance of various sectors during economic upturns. 

• Infrastructure Development

An infrastructure development policy ensures better access to essential services in a country. Infrastructure developments in India will improve connectivity and help reduce logistics costs. These can, in turn, boost economic activities and create new opportunities in the infrastructure sector. 

*The impact of a government scheme on the business cycle is often dependent on the prevailing economic conditions and specific time stamps. 

Why should you Invest in Motilal Oswal Business Cycle Fund?

• Diversification: The Motilal Oswal Business Cycle fund offers a diversified portfolio since it invests across various sectors and market capitalizations. This diversification helps in reducing risk.
• Flexibility: The fund manager has the flexibility to adapt the portfolio to changing economic conditions. So the allocation of your assets can quickly be adjusted according to the economic cycle/prediction. 
• Growth Potential: By investing across different market segments, the fund can benefit from a broader range of investment opportunities.
• Risk Management: Since the business cycle method isn’t completely foolproof, diversification helps mitigate the impact of underperformance in any particular sector.

Historically, no sector has consistently outperformed others over extended periods. By utilising Sector rotation—shifting investments between different sectors based on economic conditions— one can successfully generate reasonable returns. Business cycle investing focuses on identifying and investing in sectors poised to benefit from the current phase of the economic cycle. The fund endeavours to deliver a long-term capital appreciation by combining the experience and expertise of the fund management team and a disciplined investment approach. By investing in the Mutual Fund, you as an investor stand a chance at gaining potentially superior returns as it focuses on high-growth sectors through an experienced investing team.

Benchmark: Nifty 500 TRI

The fund’s performance will be benchmarked against the Nifty 500 TRI, which includes companies from all three market capitalization segments, effectively providing a clear comparison to the overall market’s performance.

Who Should Invest?

• Long-term Investors: The fund is ideal for investors with a long-term investment horizon.
• Growth-Oriented Investors: Those seeking capital appreciation through exposure to a high-growth sector.
• Diversification Seekers: The fund can complement a diversified portfolio by providing exposure to a dynamic sector driven approach

Fund Details

• Fund Name: Motilal Oswal Business Cycle Fund
• Investment Objective: To achieve long-term capital appreciation by investing in equity and equity-related instruments of companies across different business cycle stages.
• Benchmark: Nifty 500 TRI
• Fund Managers: Niket Shah, Santosh Singh, Rakesh Shetty, Ajay Khandelwal, Atul Mehra

Key Dates and Information

• Opening Date: 7 August 2024
• Closing Date: 21 August 2024
  
  With a minimum investment of ₹500, investors can participate in this fund aimed at achieving long-term capital appreciation. The fund dynamically allocates investments across various sectors and stocks to harness the potential of different business cycle phases. While there’s no entry load, an exit load of 1% applies for redemptions within three months of allotment.

Conclusion

The Motilal Oswal Business Cycle Fund would present an opportunity for investors to benefit from the dynamism of the Indian economy, by optimally utilising the knowledge of existing business cycles. However, it is important to note that past performance is not indicative of future returns. India is at a pivotal moment in its economic journey. With a favorable business environment and a growing middle class, the country is primed for sustained growth. The Motilal Oswal Business Cycle Fund offers investors an exciting opportunity to participate in this growth story.

Disclaimer: Investing in equity mutual funds involves market risk. Please read the scheme information and related documents carefully before investing.