Motilal Oswal Asset Management Company has launched the first-ever passive fund on Nifty Microcap 250 Index. The fund aims to provide investors an opportunity to participate in the growth potential of micro-cap stocks. The NFO opens on June 15.

The Nifty Microcap 250 Index is designed to measure performance of the top 250 companies excluding those already present in the Nifty 500 constituents. The index is well-diversified, with its top 10 holdings accounting for only 11 per cent against 59 per cent in Nifty 50 Index.

Further, it also provides diversified exposure to sectors like Industrials, Consumer Discretionary, Commodities and Healthcare that are usually underweight in broad-based market indices.

Over the last three years, the Nifty Microcap 250 Index has delivered 58 per cent return on an annualised basis. Micro-cap companies account for just three per cent of the total market capitalisation of listed stocks. The fund house does not see any liquidity issue in deploying the inflows.

Micro-caps are not under the radar of research analysts, with more than 40 per cent of companies receiving no analyst coverage. In fact, less than 4 per cent of mutual fund industry’s AUM is invested beyond top 500 companies. This creates a higher likelihood of finding hidden opportunities, said the fund house. The Indicative Base Total Expense Ratio for regular plan will be 1 per cent and 0.40 per cent for direct plan.

Pratik Oswal, Head of Passive Funds, Motilal Oswal AMC, said the fund house leads the charge in unlocking the untapped potential and opportunities of this distinctive investment category, which holds immense potential and unique investment opportunities that have been overlooked by many in the industry.

Albeit at a higher risk, micro-caps have compelling track record of delivering higher returns compared to its counterparts and investors should consider 5-10 per cent allocation based on their risk profile, he said.