Momentum Mutual Funds focus on an investment strategy called ‘Momentum Investing’. The goal of momentum investing is to capitalise on the tendency of stocks that have been performing well to continue performing well in the future.<\/p>\n\n\n\n
Momentum Mutual Funds strategically invest in stocks that exhibit strong upward price momentum; the strategy is based on the idea that stocks that have been outperforming the market in the past are more likely to continue such outperformance in the future.<\/p>\n\n\n\n
As there is no assurance that the stocks that have been outperforming in the past will maintain their upward trend, Momentum Mutual Funds can be a risky investment. However, they can also be very rewarding, as they have the potential to yield high returns.<\/p>\n\n\n\n
Momentum Mutual Funds are actively managed, meaning the fund manager selects the stocks that they believe will continue to outperform, considering the investor interest and momentum in it. This can be a risky strategy, as there is no guarantee that the stocks that have been beating in the past will continue to do so. However, momentum mutual funds can also be advantageous, as they have the potential to generate high returns.<\/p>\n\n\n\n
Overall, Momentum Mutual Funds offer investors a new and exciting way to invest in the equity market. However, it is important to remember that momentum investing is not without risk, and investors should carefully consider their risk tolerance before investing in this strategy.<\/p>\n\n\n\n
Now let us understand in detail…<\/p>\n\n\n\n
What is Momentum Investing?<\/strong><\/p>\n\n\n\n Momentum Investing is an investment strategy\/style that involves buying securities that exhibit strong upward price momentum and selling those that exhibit strong downward price momentum. The fundamental tenet of momentum investing is that trends in asset prices typically hold, and as a result, investors can make money by spotting and exploiting these trends.<\/p>\n\n\n\n Momentum Investing is strictly a technical trading strategy. The operational performance of a company is also a factor in momentum investing. Technical indicators are used in momentum investing to analyse a security and detect patterns, as well as to measure the intensity of the trend and the degree of price momentum in the market.<\/p>\n\n\n\n Thus, momentum investing tries to ride this wave or momentum of stocks that are doing well and then jump on to the next wave before the first one slows down.<\/p>\n\n\n\n [Read: <\/strong>Are Your Equity Mutual Funds Generating Alpha Returns?<\/a>]<\/p>\n\n\n\n How Momentum Investing in Mutual Funds Works?<\/strong><\/p>\n\n\n\n Although momentum investing is a stock trading approach, it is now popular amongst mutual fund investors as a lucrative investment style. Mutual funds focusing on a momentum investing strategy can be managed actively or passively.<\/p>\n\n\n\n Active Momentum Mutual Funds<\/strong> are managed by a fund manager who selects stocks based on their momentum. The fund manager will typically use technical analysis to identify stocks that are exhibiting strong upward price momentum. Active momentum mutual funds can be more expensive than passive momentum funds, as they require active management.<\/p>\n\n\n\n There are various factors, as mentioned below, to identify the momentum stocks:<\/p>\n\n\n\n Passive Momentum Mutual Funds<\/strong> track a momentum index, such as the Nifty200 Momentum 30 Index. This means that the fund will invest in the stocks that are currently in the index, regardless of their current momentum. Passive momentum funds are a low-cost option than active momentum funds, as they do not require active management.<\/p>\n\n\n\n There are 12 schemes focusing on momentum indices in the Indian mutual fund industry. Among large-cap equity funds<\/a>, all index funds tracking the Nifty200 Momentum 30 Index Fund have been one of the top performers based on one-year performance.<\/p>\n\n\n\n Graph:\u00a0NAV growth of Momentum Indices since inception as compared to Parent Indices<\/em><\/strong><\/p>\n\n\n\n Data as of November 17, 2023 The Nifty200 Momentum 30 Index tracks the performance of the top 30 companies within the Nifty 200 that have the highest momentum score. Meanwhile, the Nifty Midcap150 Momentum 50 Index aims to track the performance of the top 50 companies within the Nifty Midcap 150 selected based on their Normalised Momentum Score.<\/p>\n\n\n\n These indices are reviewed semi-annually (June and December). To qualify for the momentum index, stocks should be listed for more than one year and be available for trading in the derivatives segment.<\/p>\n\n\n\n Momentum Mutual Funds mainly follow growth or GARP (Growth at a Reasonable Price) investment style. Growth investing focuses on companies with high growth potential, even if they are currently trading at a premium. This is because momentum investors believe that these companies will continue to outperform the market in the future.<\/p>\n\n\n\n GARP investing, which stands for ‘Growth At a Reasonable Price,’ is a hybrid investment strategy combining elements of growth and value investing. The GARP approach looks for companies with strong growth prospects but currently trading at a price that is considered fair or even undervalued.<\/p>\n\n\n\n Having said that, Momentum Mutual Funds are a type of investment fund that attempts to capitalise on the momentum effect, which is the tendency of stocks that have recently been rising in price to continue to rise.<\/p>\n\n\n\n The benefits of Investing in Momentum Mutual Funds Are as follows:<\/strong><\/p>\n\n\n\n There are also some risks associated with investing in Momentum Mutual Funds. These include:<\/strong><\/p>\n\n\n\n When it comes to investing, you could do a Google Search “Best Momentum Mutual Funds”, but that’s not the right approach. It is necessary to look into various qualitative and quantitative factors before investing in mutual funds. Analysing the scheme’s past performance is one of the prevalent factors.<\/p>\n\n\n\n Now, let’s throw some light on how the Momentum Mutual Funds have performed in a while…<\/p>\n\n\n\n Table: Performance of Momentum Mutual Funds<\/em><\/strong><\/p>\n\n\n\n![\"\"](\"https:\/\/data.personalfn.com\/images\/Graph-Passive-Momentum-Mutual-Funds-01.jpg\")
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Past performance is not an indicator of future returns.
Mutual Fund investments are subject to market risks. Read all scheme-related documents carefully.
(Source: ACE MF, data collated by PersonalFN Research)\u00a0<\/p>\n\n\n\n