When I checked my portfolio last week, this fund showed a 1-year return of 54.4%. My first reaction was satisfaction — the Nasdaq 100 had a strong year. My second reaction, after lining it up against comparable funds, was that a meaningful chunk of that 54.4% has nothing to do with how the Nasdaq actually performed. And when I checked the 3-year and 5-year numbers too, the same gap showed up — smaller, but still there.
Disclosure: I’ve been invested in the Motilal Oswal Nasdaq 100 FOF for over 5 years, through both SIP and lumpsum additions. I redeemed a portion of this holding a couple of times for house construction expenses. This article is for comparison and education purposes only, not a recommendation to buy, hold, or sell.
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Why This Matters
The Motilal Oswal Nasdaq 100 FOF doesn’t invest directly in the index. It invests in units of the Motilal Oswal NASDAQ 100 ETF, and that ETF trades on the exchange like any listed security. When my FOF calculates its own NAV, it factors in the ETF’s market price — and that market price has been trading well above the ETF’s own NAV for some time.
Same Index, Very Different Returns
| Fund | 6-Mth | 1-Yr | 3-Yr CAGR | 5-Yr CAGR | 10-Yr CAGR |
|---|---|---|---|---|---|
| Motilal Oswal Nasdaq 100 FOF | 46.5% | 54.4% | 38.2% | 23.8% | — |
| Motilal Oswal NASDAQ 100 ETF | 25.6% | 32.1% | 30.8% | 20.0% | 24.1% |
| Motilal Oswal Nasdaq Q50 ETF | 29.1% | 37.3% | 30.5% | — | — |
| ICICI Pru NASDAQ 100 Index Fund | 25.6% | 31.6% | 30.8% | — | — |
| Navi Nasdaq100 US Passive FoF | 25.5% | 31.9% | 31.1% | — | — |
| Axis NASDAQ 100 Passive FoF | 23.4% | 30.0% | 30.0% | — | — |
| Invesco EQQQ NASDAQ-100 ETF FoF | 23.3% | 30.4% | 30.4% | — | — |
Latest available returns, direct plans, as sourced.
The pattern is hard to miss. Five funds — including Motilal Oswal’s own NASDAQ 100 ETF, which is meant to be a near-direct index play — sit clustered between 30% and 32% for the 1-year period. My FOF, holding the exact same underlying index through that same ETF, shows 54.4%. That’s roughly 23 percentage points higher, almost double.
The Gap Doesn’t Close Over Longer Periods — It Just Narrows
I assumed this premium was a short-term distortion that would average out over 3–5 years. The data says otherwise:
- 6 months: FOF at 46.5% vs. peers at 23–29% — a gap of roughly 18–23 points
- 1 year: FOF at 54.4% vs. peers at 30–37% — a gap of roughly 17–24 points
- 3 years (CAGR): FOF at 38.2% vs. peers at 30–31% — a gap of roughly 7–8 points annually
- 5 years (CAGR): FOF at 23.8% vs. the ETF’s own 20.0% — a gap of roughly 3.8 points annually
The gap shrinks the longer you hold, which makes sense — a premium that fluctuates gets averaged into a longer CAGR. But it never fully disappears in this data, which tells me the premium has been a recurring feature over my entire holding period, not a one-off spike.
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Why the Premium Exists
Indian mutual funds investing overseas operate under an RBI-set ceiling on total industry overseas investment. That ceiling was hit in April 2024. Since then, fund houses haven’t been able to create new ETF units to meet fresh demand. With supply frozen and demand continuing, the ETF’s market price has drifted upward, away from its NAV — at times sharply, with related Nasdaq-tracking ETFs showing premiums as high as 135% in recent weeks.
My Own Journey With This Fund
I started investing in this fund more than five years ago, adding through both SIPs and lumpsum amounts along the way. A couple of times, I redeemed a portion of my holding to fund house construction expenses — decisions driven by life needs, not by any read on the ETF premium, which I wasn’t tracking closely at the time. Looking back, I have no way of knowing whether the premium was elevated or muted at those points. That’s part of why I’m writing this now — so other long-term holders can factor it in going forward, which I didn’t.
Could This Reverse?
This is the part that concerns me as someone still holding this fund. SEBI has issued a circular resetting the reference price used for these ETFs to the previous day’s NAV, effective April 1, 2027. Once that takes effect, the structural gap between market price and NAV should close.
There’s no certainty on timing beyond that date — SEBI could act sooner, or the RBI ceiling could be revised to allow fresh unit creation before then, which would also compress the premium. In plain terms: the 17–24 percentage points separating my fund’s 1-year return from comparable funds is not locked in. It reflects a price premium that the regulatory framework is specifically designed to close. The same logic applies, in smaller measure, to the extra points in my 3-year and 5-year numbers.
What I’m Doing With My Own Holding
Since I disclosed upfront that I hold this fund, it’s worth being equally upfront about how I’m thinking through it — purely as one investor’s reasoning, not a suggestion for anyone else to copy.
Option 1: Exit now. Redeeming today locks in whatever premium exists at this moment — currently over 20%. The appeal is obvious: capture the number I’m seeing before any correction. The catch is I’d also be crystallizing capital gains tax right now, and I’d be guessing at timing in a situation the data itself says is unpredictable. I could redeem today and watch the premium widen further before SEBI’s 2027 reset even arrives — or I could redeem right as the correction was about to happen naturally. Neither the article’s data nor anything else tells me which.
Option 2: Watch and reassess periodically. Rather than making one binary decision, I could track the ETF’s premium-to-NAV figure alongside my fund’s NAV every few months, and treat a widening or narrowing premium as information — not a trigger to act immediately, but a reason to revisit the decision on a set schedule (say, alongside my annual portfolio review). This doesn’t solve the uncertainty, but it keeps me informed rather than reactive.
Option 3: Continue holding, treat the premium as embedded volatility. My original reason for investing in this fund was Nasdaq 100 exposure over a long horizon, not this particular ETF’s trading mechanics. If my investment horizon is genuinely long (I’ve already held 5+ years), one view is that a premium that’s expected to normalize by April 2027 is a medium-term distortion within a long-term holding, and reacting to it now might matter less than staying invested through the correction, whichever direction it comes from.
Why I’m not considering a straight switch to another Nasdaq 100 fund. The obvious next question is whether to simply move to one of the funds without this ETF-premium issue — ICICI Pru, Axis, Navi, or Invesco. I’m not going that route, for a structural reason: every AMC offering overseas index/FOF exposure operates under the same RBI-set ceiling on industry-wide overseas investment. That ceiling is why the Motilal Oswal ETF’s unit-creation is frozen in the first place — it isn’t specific to one fund house. A switch also means redeeming this fund (triggering the same tax event as Option 1) to re-enter a different overseas fund that carries its own version of the same regulatory constraint, just without the listed-ETF layer on top. For me, that doesn’t remove enough uncertainty to justify the tax cost and re-entry timing risk involved.
I haven’t finalized which of these three I’ll go with — this article is partly me thinking out loud through the decision, not announcing a conclusion.
Things to Check If You Hold a Similar Fund
- Check whether your Nasdaq 100 or other international fund holds a listed ETF directly, or invests through the index/fund-of-funds route without one
- Compare your fund’s 6-month, 1-year, and 3-year returns against 2–3 other funds tracking the same index
- Look up the ETF’s current premium/discount to NAV, published daily by the AMC or on exchange data pages
- Understand that a large premium is a structural, regulation-linked condition — not a reflection of fund manager skill
- If you’re planning a redemption around a life event (as I did), factor in that the premium adds uncertainty to the exact NAV you’ll get, on top of normal market movement
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FAQ
1. Does this mean the Motilal Oswal Nasdaq 100 FOF is a bad fund?
Not necessarily. It reflects the same underlying Nasdaq 100 index as other funds. The distortion comes from the ETF layer’s trading premium, not the fund’s index-tracking or management.
2. Will the premium definitely disappear by April 2027?
SEBI’s rule change is scheduled to take effect then, but the premium could narrow earlier if the RBI’s overseas investment ceiling is revised, or it could persist until the rule kicks in. This isn’t something that can be predicted with certainty.
3. Should I switch out of ETF-linked Nasdaq 100 funds?
This article is for comparison and educational purposes. Whether to hold, switch, or redeem depends on your own tax situation, holding period, and financial goals — it isn’t something a general article can decide for you.
Disclaimer: This article is based on publicly available fund return data and is intended purely for comparison and educational purposes. It is not investment advice. Mutual fund investments are subject to market risk. Please consult your financial advisor before making investment decisions.
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