Momentum investing is becoming another popular investing strategy nowadays. Because of its popularity, fund houses started focusing on momentum mutual funds. Today we will explore this strategy and provide you with the list of top 5 best performing momentum mutual funds, including their historical CAGR returns. So, you can choose your further investment decisions with more data.
Before diving into the fund names, first you need to know what is actually a momentum fund, strategies involved behind this, etc.
Table of Contents
What are Momentum Mutual Funds?
Momentum mutual funds follow a momentum investing strategy, which involves capitalizing on trends in market prices. This means investing in stocks or securities that have shown an upward price trend or selling those with a downward trend. These funds typically invest in equities that have shown strong price performance, aiming to generate superior returns by riding the upward trends of these stocks.
Momentum funds come under Smart Beta Investing. Smart Beta investing that uses a different approach to constructing portfolios than traditional market-cap weighted indexes. They use performance factors like value, quality, momentum, low volatility, and size to select stocks, and aim to enhance returns and manage risk.
Momentum investing is one of those performance factors of Smart Beta. In this Smart Beta approach, momentum investing strategy is considered one of the higher rewarded and volatile strategies. Which means in a bull market, it can easily beat the market index, but in certain bear market conditions, it may also give negative returns.
That is why at the end of this article, we have mentioned which type of investors should consider momentum mutual funds. So, read it till the end.
Momentum funds invests in stocks that have shown strong price growth over a period of time, typically lasting 6 or 12 months. The goal is to benefit from the price appreciation of these assets by buying when they are performing well and selling when the trend peaks. In simple terms: Buy on High Price, Sell on Higher Price.
Advantage of Momentum Mutual Funds
Momentum Funds come with different types of benefits. One of the main benefits is High growth potential. Most of the momentum funds index funds are rebalanced twice a year. It can be helpful for those investors who want to invest in sectoral funds, but cannot determine future growth of a particular sector to invest in. Those investors can look at momentum mutual funds. Because when a sector’s stocks start showing growing momentum, those are added to that particular momentum index.
For example, between 2023-24, you may notice PSU, Defence stocks in holdings of momentum funds. Because during that time period, those sectors are showing better momentum. So, investors no need to use extra effort to find sectoral funds. Growing sector’s stocks are added every 6 months to those indexes.
If you are curious to know about rebalancing date and month, visit the NSE Indices official website, and select “Strategy Indices” from the drop-down menu, then you can find rebalancing month and day details of those indexes. Suppose, according to that official website, Nifty 500 Momentum 50 Index rebalanced Semi-annually, Last working day of June and December.
The next benefit is a lower expense ratio. Of course, investing in a passively managed index fund charges a lower expense ratio and exit load than an actively managed fund.
Third one is the many years of historical track record. As most of the momentum mutual funds are index funds, we have more than the past 10 years of data to analyse those index’s performance. But do note that active momentum funds are new, available in 2023. So, we don’t have much data to analyse and prove if actively managed momentum funds will beat their benchmark or not.
Disadvantage of Momentum Mutual Fund
As we mentioned some advantages, it is also important to discuss some disadvantages. The main disadvantage of momentum funds is Higher Volatility. Momentum strategies tend to invest in stocks with higher price swings. Which means, it can lead to significant short-term losses during market downturns. So, during the investing journey of a momentum investor, the market will test your patience levels. By targeting a long term horizon, patience can be achieved. Also, many professionals recommend not to look at the market daily, to avoid unnecessary tension. We are investors, not traders. If you trust in your investing decisions, then there is no need to worry about market volatility.
Another disadvantage is higher charges. Actively managed momentum fund’s managers often buy and sell stocks frequently to capture short-term price trends. Which may lead to higher transaction costs. So, you may also notice higher expense ratios for those active funds.
1. Nippon India Nifty 500 Momentum 50 Index Fund
Nippon India launched their Nifty 500 Momentum 50 Index Fund in 2024. This fund includes top 50 high momentum stocks from Nifty 500 Index. This index is a combination of large, mid, and small cap stocks. If you are particularly looking for a mid cap and small cap based momentum fund, then continue reading below.
Even though this fund is new, we have the historical track record of its index. Here is Nifty 500 Momentum 50 Index returns.
| Timeframe | CAGR |
|---|---|
| 1 year | 69.51% |
| 5 years | 35.77% |
| Since inception | 24.97% |
According to the August 2024 factsheet, the total return index (TRI) of Nifty 500 Momentum 50 has provided 24.97% CAGR since inception. This gives investors a hint how the momentum strategy is powerful to build wealth in the long run.
2. UTI Nifty200 Momentum 30 Index Fund
UTI Nifty200 Momentum 30 Index Fund track Nifty 200 Momentum 30 index. The Nifty200 Momentum 30 Index aims to track the performance of 30 high momentum stocks across large and mid-cap stocks. UTI Nifty200 Momentum 30 Index fund was launched in March 2021. This fund is less volatile than the Nifty 500 momentum 50 index. Here is Nifty 200 Momentum 30 TRI’s historical returns.
| Timeframe | CAGR |
|---|---|
| 1 year | 68.91% |
| 5 years | 30.53% |
| Since inception | 21.79% |
3. Edelweiss Nifty Midcap150 Momentum 50 Index Fund
Nifty Midcap 150 represents 150 companies based on full market capitalisation from Nifty 500. Which means 101 to 250 (total 150) companies of Nifty 500 index included in Nifty Midcap 150. For those who prefer midcap investing with a balanced risk and reward, can consider Edelweiss Nifty Midcap150 Momentum 50 Index Fund. There are 150 companies in the index Nifty Midcap 150, which means top 50 higher momentum stocks are included in the Nifty Midcap150 Momentum 50 Index fund.
| Timeframe | CAGR |
|---|---|
| 1 year | 66.13% |
| 5 years | 39.93% |
| Since inception | 25.39% |
4. Mirae Asset Nifty Smallcap 250 Momentum Quality 100 ETF FoF
Smallcap sectors have provided massive returns in the last few years. Many investors believe that Small Caps are in a Bubble. However, investors keep investing in small cap funds and these funds can provide higher reward in the long run. For those investors who are looking for an momentum strategy based smallcap fund, Mirae Asset Nifty Smallcap 250 Momentum Quality 100 ETF FoF is a good fund to check.
The Nifty Smallcap250 Momentum Quality 100 Index includes top 100 companies from its parent Nifty Smallcap 250 index, selected based on the combination of momentum and quality factors.
| Timeframe | CAGR |
|---|---|
| 1 year | 51.73% |
| 5 years | 34.77% |
| Since inception | 24.53% |
This is a smallcap momentum fund. In some market conditions like bear markets, it may take more time to recover than the mid and large cap based funds.
5. Quant Momentum Fund
Quant Momentum Fund is an actively managed momentum mutual fund and its benchmark is Nifty 500 TRI. This is a new fund launched in November 2023, and investors don’t have any long track record for this fund. However, if you look at the fund house, Quant Mutual Fund has given a good return in the last 5 years for their many funds. Such as Quant Small cap, Mid cap, Quant Infrastructure fund, etc.
Quant Momentum Fund could be a great choice for those investors who want to invest through momentum strategy, but not through an index fund.
Which Momentum Mutual Fund is best?
There are different types of investors with different goals. We separated and found the best 3 funds for different types of investors.
For those who want large, mid, and small cap sector stocks in momentum investing:
- Nippon India Nifty 500 Momentum 50 Index Fund
For those who want only large, and mid cap stocks in a momentum mutual fund:
- UTI Nifty200 Momentum 30 Index Fund
For those who prefer an actively managed fund instead of index fund:
- Quant Momentum Fund
If you want a definitive answer to Which Momentum Mutual Fund is best?, consider Nippon India Nifty 500 Momentum 50 Index Fund. Because it is an index fund, which requires a lower expense ratio compared to actively managed funds. Also, it includes Large, mid, and small size companies and Nifty 500 Momentum 50 Index has a historical track record of performing well. Furthermore, Nippon India is one of the popular AMCs in India trusted by millions of investors.
Things to Consider Before Investing in Momentum Mutual Fund
If you are planning to add a momentum fund in your portfolio, then it is important to know which type of investor you are, and what is your investment horizon. For short-term investing, these funds should be avoided, because of their high volatile nature. But if you are an investor with a long-term investment horizon like 10 years, 15 years, etc, then Momentum mutual funds may be one of the best funds to grow your wealth. Because as we know, even though momentum funds are volatile, as years passes, their volatility decreases. So, in a longer timeframe, these funds become less volatile.
When investing in momentum mutual funds, make sure to not put a huge percentage of the portfolio to his fund. In bear market conditions, it may highly affect your portfolio. So, consider proper diversification with an expert before making investment in those funds.
FAQs
Is momentum fund good or bad?
Momentum funds are considered good for long-term investment. Because it has the ability to provide consistent return by beating the broad market index. But for short-term investors, it may not be good as these funds are highly volatile in the short-term.
Is it safe to invest in momentum funds?
If you pick the best fund with proper research, it may be safe to invest in momentum funds. But as you are investing in equity funds, there is always risk. If you are scared of short-term volatility, then you should avoid these types of funds. Because momentum funds are designed for those investors who are always looking for maximizing the return while ready to take more risk and able to deal with volatile market conditions.
What is the difference between a value fund and a momentum fund?
A value fund and a momentum fund represent two distinct investment strategies. Value funds focus on identifying undervalued stocks that are trading below their intrinsic value, with the expectation that these stocks will appreciate over the long term as the market corrects its mispricing. This approach is often characterized by a contrarian mindset, looking for stocks with strong fundamentals but temporarily depressed prices.
On the other hand, momentum funds capitalize on existing trends in stock prices, investing in companies that have recently shown strong performance, based on the belief that such trends are likely to continue in the short to medium term.
Which Nifty 500 Momentum 50 Index Fund is best?
There are few fund houses that launched their Nifty 500 Momentum 50 index fund, like Bandhan, Motilal Oswal, and Nippon India. The Nippon India Nifty 500 Momentum 50 Index Fund is a good choice. It offers a lower expense ratio, a reputed AMC in India, and manages more than 4 lakh crore assets.
Is Motilal Oswal Nifty 500 Momentum 50 Index Fund good?
Yes, Motilal Oswal Nifty 500 Momentum 50 is a good index fund. It accepts a minimum of ₹500 for SIP and lump sum investments. However, if you want a lower expense ratio and no exit load, the Nippon India Nifty 500 Momentum 50 Index Fund may be a better option, as it tracks the same index.
We hope this article helps you find a good-quality momentum fund. Don’t take it as investment advice, because our mission is to provide top funds from this mutual fund market. Not to give you advice. So, talk with a professional before investing in mutual funds.
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