Investing in Index funds is one of the best way to generate wealth for the average investor because index funds mostly tracks a certain index and replicates its performance.

With many investors lacking the time to monitor the investments, passive investing is becoming popular and Index funds prove to be a major investment avenue in this category. You see, there are benchmark indices for various segments of the equity markets that reflect the movement and stock price trends of that particular segment.

Index funds are mainly focused on replicating the performance of the parent index closely. Here, the benefit investors get is that the fund holds stocks in similar proportion to the selected index and the scheme performance will reflect the index performance with minor tracking differences.

Fund managers actively manage most equity-oriented schemes to outperform its benchmark index; however, Index funds are passively managed. In this case, the fund manager replicates the composition of a certain index, which restricts the possibility of fund’s outperformance.

Investors are attracted to the benefits Index funds offer like less churning of portfolio, lower fund management expenses that help to score better returns than actively managed funds that usually have higher expense ratios. While index funds have plenty advantages, you must ensure that they are aligned with your investment needs.

Looking at the investors inclination towards Index funds, UTI Mutual Fund has rolled out UTI Nifty200 Momentum 30 Index Fund, which focuses on momentum investing. The fund house is of the view that momentum strategy is an investment style that has performed well in the long-term.

The scheme is a low-cost index fund that tracks the Nifty200 Momentum 30 Index passively, to achieve the investment objective of generating returns equivalent to the underlying index with minimum tracking error.

However, there is no guarantee or assurance that the investment objective of the scheme will be achieved.

Table 1: Details of UTI Nifty200 Momentum 30 Index Fund

Type An open-ended scheme replicating/tracking the Nifty200 Momentum 30 Index Category Index Fund
Investment Objective The investment objective of the scheme is to provide returns that, before expenses, closely correspond to the total returns of the securities as represented by the underlying index, subject to tracking error.
However, there is no guarantee or assurance that the investment objective of the scheme will be achieved.
Min. Investment Rs 5,000 and in multiples of Re 1/- thereafter.Additional Purchase Rs. 1000/- and in multiples of Rs. 1/- thereafter. Face Value Rs 10/- per unit
SIP/STP/SWP Available
  • Direct
  • Regular
  • Growth
  • Dividend
Entry Load Not Applicable Exit Load Nil
Fund Manager Mr Sharwan Kumar Goyal Benchmark Index Nifty200 Momentum 30 Index
Issue Opens February 18, 2021 Issue Closes March 04, 2021

(Source: Scheme Information Document

What will be the Investment Strategy for UTI Nifty200 Momentum 30 Index Fund?

UTI Nifty200 Momentum 30 Index Fund is a low-cost Index fund that passively tracks the Nifty200 Momentum 30 Index. This scheme endeavours to invest in the stocks related to the index and generate returns equivalent to underlying index while minimizing tracking error.

The portfolio turnover will be confined only to rebalancing the portfolio on account of new subscriptions, redemptions, and changes in composition of the underlying index, due to this scheme being a passively managed fund.

This scheme may take an exposure to equity derivatives of constituents of the underlying index for short duration when securities of the index are unavailable, insufficient or for rebalancing at the time of change in index or in case of corporate actions or for hedging purposes, as permitted by SEBI/RBI (including CPs, CDs and Triparty Repos).

About the Index

The Nifty200 Momentum 30 Index aims to track the performance of 30 high momentum stocks across large and mid-cap stocks within the Nifty 200 Index. The index constitutes only those stocks which are eligible for derivative trading from the Nifty 200 index universe. From this it selects the top 30 stocks with the highest ‘normalised momentum score’. The normalised momentum Score for each stock is determined based on recent 6-month and 12-month price returns, adjusted for volatility. Stock weights are based on a combination of the stock’s Normalised Momentum Score and its free-float market capitalization.

Below mentioned is the list of the Top 30 constituents by weightage as on 31stDecember 2020:

(Source: Scheme Information Document

The scheme, apart from investments in stocks replicating the Nifty200 Momentum 30 Index, will invest up to 5% of its net assets in Debt/ Money Market instruments including Triparty Repo and units of Liquid Mutual Fund to meet the liquidity requirements of the scheme.

Under normal circumstances, the asset allocation will be as under:

Table 2: Asset Allocation of UTI Nifty200 Momentum 30 Index Fund

Instruments Indicative Allocations (% of Net Assets) Risk Profile
Minimum Maximum High/Medium/Low
Securities covered by Nifty200 Momentum 30 Index 95 100 Medium to High
Debt/ Money Market instruments including Triparty Repo and units of Liquid Mutual Fund 0 5 Low

(Source: Scheme Information Document

Who will manage UTI Nifty200 Momentum 30 Index Fund?

Mr Sharwan Kumar Goyal will be the dedicated Fund Manager of UTI Nifty200 Momentum 30 Index Fund

Mr Sharwan Kumar Goyal is a Vice President and Fund Manager in the domestic Equity Division of UTI Asset Management Company Ltd. and he has over 13 years of experience in Risk / Fund management. Mr Goyal’s qualifications, MMS and CFA from the CFA institute, USA.

Currently funds managed by him are UTI Nifty ETFUTI Sensex ETFUTI Nifty Next 50 ETFUTI Nifty Index FundUTI Nifty Next 50 Index FundUTI S&P BSE Sensex Next 50 ETFUTI Bank ETFUTI Gold ETFUTI Arbitrage Fund (Equity Portion)

Fund Outlook – UTI Nifty200 Momentum 30 Index Fund

UTI Nifty200 Momentum 30 Index Fund will invest in the Nifty200 Momentum 30 Index stocks; the fund house has introduced a momentum investment style under this index fund route.

Momentum strategy works on the premise that stocks/sectors that have outperformed recently will continue to outperform, and vice versa. This means that the strategy relies mainly on the recent events without much consideration to the long term outlook of the particular stock/sector.

This makes the momentum strategy an aggressive and highly volatile investment style. It requires higher risk tolerance, as the fund focusing on momentum investing it may go through a period of underperformance if there is any sharp change in market dynamics.

If you are a refined investor, looking for investment in index funds to gain capital growth in tune with the potential returns of the underlying index by passive investing with momentum strategy in Nifty200 Momentum 30 Index. Plus, if you have a long-term investment horizon, higher risk tolerance to survive the volatility of market and the fund aligns with your investment objective only then you may consider investing in UTI Nifty200 Momentum 30 Index Fund.

This article first appeared on PersonalFN here

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