Top Alpha Mutual Funds to Beat the Market

In the modern world of investing, there are various strategies introduced in front of investors. Nowadays, investors can choose specific strategies for their investing goals, instead of old age investing style. One of the popular strategies is called Alpha Investing. When it comes to mutual funds, there are some Alpha Mutual Funds that allow investors to invest in the market through the alpha strategy.

In this article, we will learn about alpha mutual funds, and share a list of top funds in this category. So, if you want to beat the market, then it is important to know about the alpha mutual funds and how these funds are made. Also, most of these funds are index funds, which means they will charge you a lower expense ratio.

Table of Contents

What are Alpha Mutual Funds?

Alpha Mutual Funds are those type of funds that include stocks with high alphas. Suppose there is an index fund called Nifty200 Alpha 30 index. In this index, NSE will include 30 high alpha stocks from Nifty 200, which means not all 200 stocks will be included in Nifty200 Alpha 30 index; only top 30 high alpha stocks are present there.

Alpha is the excess return on an investment after adjusting for market-related volatility and random fluctuations. Alpha is one of the five major risk management indicators for mutual funds, stocks, and bonds. As we are talking about alpha mutual funds, stocks with higher alpha matter.

Don’t get confused between alpha of a mutual fund and alpha mutual funds. In mutual funds, Alpha is a metric that represents the value a portfolio manager adds to or subtracts from a fund’s return relative to the fund’s benchmark index. While as an investing strategy, stocks with high Alphas within a perticular timeframe, included to the alpha index. Funds that try to replicate the alpha index called as alpha mutual funds. High Alpha of a stock means its weightage will be high in the index.

What is the difference between Nifty Alpha 50 and Nifty 50?

Composition and Selection Criteria

• Nifty Alpha 50: This index tracks the performance of 50 stocks with high alphas in last one year. Top 50 stocks are selected out of top 300 stocks in NSE based on market cap. Stocks with highest alpha in the index is assigned the highest weight. The alpha score measures a stock’s performance relative to its expected return based on its risk level. Stocks are selected based on their potential to generate excess returns, which is calculated using historical prices, market capitalization, and trading volumes.
• Nifty 50: In contrast, Nifty 50 consists of the top 50 companies listed on the NSE based primarily on market capitalization and liquidity. It represents a broader segment of the Indian equity market, capturing the performance of well-established companies across various sectors.

Objectives and Performance Focus

• Nifty Alpha 50: The primary goal of this index is to track stocks that are expected to deliver high alpha, thereby focusing on high-growth potential stocks. It aims to provide a benchmark for evaluating investment strategies that target superior returns.
• Nifty 50: This index serves as a benchmark for the overall performance of the Indian stock market. It reflects the performance of large-cap stocks and provides insights into the broader economic landscape. Nifty 50 is often used by investors as a gauge for market health and trends.

Volatility and Risk

• Nifty Alpha 50: Generally exhibits higher volatility due to its focus on high alpha stocks, which can be more susceptible to market fluctuations. This characteristic may appeal to investors seeking higher returns but also comes with increased risk.
• Nifty 50: Tends to have comparatively lower volatility, representing stable large-cap stocks that are less prone to drastic price changes. This makes it a more conservative investment option for those prioritizing stability over aggressive growth.

Investment Focus

• Nifty Alpha 50: Targets high-growth potential stocks that may not necessarily be among the largest companies by market cap but have shown significant performance in terms of alpha generation. This index can be particularly attractive during volatile market conditions where growth opportunities are sought after.
• Nifty 50: Focuses on well-established and financially sound companies, making it suitable for investors looking for reliable long-term investments with steady growth prospects.

1. Bandhan Nifty Alpha 50 Index Fund

Bandhan Nifty Alpha 50 is an index fund launched in November 2023. It is the first ever index fund that replicates the Nifty Alpha 50 index. The Nifty Alpha 50 index tracks the performance of 50 stocks with high Alphas in the last one year. Weights of stocks in the index are assigned based on the alpha values. Stocks with highest alpha in the index are assigned the highest weightage. Even though we have only one year data for Bandhan Nifty Alpha 50 index fund, there are more than 10 years of data for its benchmark Nifty Alpha 50 TRI. Here are the available historical return:

Timeframe	CAGR
1 year	66.65%
5 years	38.18%
Since inception	22.96%

2. Tata Nifty200 Alpha 30 Index Fund

Tata Nifty200 Alpha 30 Index Fund was launched in September 2024 to replicate Nifty 200 Alpha 30 index. This index includes 30 high alpha large and mid cap stocks from the Nifty 200 index. That is why it is called the Nifty 200 Alpha 50. This alpha mutual fund is less volatile than the Nifty Alpha 50 fund.

Timeframe	CAGR
1 year	65.68%
5 years	32.44%
Since inception	20.14%

3. Nippon India Nifty Alpha Low Volatility 30 Index Fund

By its name, it is known that the Nippon India Nifty Alpha Low Volatility 30 Index Fund is a stable and less volatile index fund than other funds in this category. It was launched in August 2022, and has given more than 50% return in one year (between 2023-24). So, for long term return, we can check its benchmark historical return, which is Nifty Alpha Low Volatility 30 TRI. It is designed to reflect the performance of a portfolio of stocks selected based on the top combination of Alpha and Low Volatility. The Index consists of 30 stocks selected from Nifty 100 and Nifty Midcap 50. So, investors’ money will be invested in the large cap and mid cap companies.

Timeframe	CAGR
1 year	58.08%
5 years	22.75%
Since inception	20.87%

4. ICICI Prudential Nifty Alpha Low Volatility 30 ETF FoF

ICICI Prudential Nifty Alpha Low Volatility 30 ETF FoF offers the opportunity to invest in the ETF of Nifty Alpha Low Volatility 30 index. This fund has given almost the same return as Nippon India Nifty Alpha Low Volatility 30 Index Fund. However, its expense ratio is lower than all other alpha mutual funds. So, when it comes to choose between the Nippon India Nifty Alpha Low Volatility 30 Index Fund and ICICI Prudential Nifty Alpha Low Volatility 30 ETF FoF, the ICICI Prudential Nifty Alpha Low Volatility 30 ETF FoF is better.

Here is the Nifty Alpha Low Volatility 30 TRI’s historical return:

Timeframe	CAGR
1 year	58.08%
5 years	22.75%
Since inception	20.87%

Which Alpha Mutual Fund is Best?

The best alpha funds would be different for different types of investors. Note that because of its volatile nature, alpha mutual funds are not for short term investors. Short term means less than 5 years of investment horizon. If you are building a portfolio with a long term horizon, which means a minimum 5 years of investment horizon, then the alpha mutual funds can provide a higher amount of return.

For those investors who like volatility and higher return:

• Bandhan Nifty Alpha 50 Index Fund

For those investors who want only large and mid cap stocks in their investment:

• Tata Nifty200 Alpha 30 Index Fund

For those investors who want less volatility, want to invest for short term (at least 4-5 years), and a lower expense ratio:

• ICICI Prudential Nifty Alpha Low Volatility 30 ETF FoF

Remember! Less volatility also decreases the rate of higher return.

Investors who are looking for Alpha and Momentum based funds mainly focus on the higher return capabilities of the funds. Because these can give a higher CAGR in long term investing (generally between 5-30 years).

Alpha vs Momentum Funds

Nowadays, investors who are looking for higher returns, have two options for strategy based investing: Alpha and Momentum. Nifty Alpha 50 Index and Nifty 500 Momentum 50 Index are the top performing index of both strategies, in the last 10 years.

Nifty Alpha 50 TRI Historical CAGR

Timeframe	CAGR
1 year	66.65%
5 years	38.18%
Since inception	22.96%

Nifty 500 Momentum 50 TRI Historical CAGR

Timeframe	CAGR
1 year	65.57%
5 years	34.76%
Since inception	24.93

As per the historical track record, Nifty Alpha 50 index has the capability to beat Nifty 500 Momentum 50 index in a short time, but in long run, the Nifty 500 Momentum 50 won.

Choosing between alpha and momentum mutual funds totally depends on personal preference, and investing style. If you are investing for short-term with high risk, Alpha Mutual Funds may give higher return, while in long-term investing (more than 5 years), Nifty 500 Momentum 50 may give higher return.

Which one do you prefer, Alpha strategy or Momentum? If you are interested in knowing about What are Momentum Funds and what are the top funds of the momentum strategy, below we have provided it as a related article link.

For those investors who are looking for an active alpha mutual fund, there are no mutual funds that are actively managed based on the alpha strategy. We will update this article if such a fund is launched in the future.