Momentum funds are increasingly attracting individuals as these funds invest in assets that are already showing strong performance. The appeal of these funds lies in their ability to generate high returns when the market is on an upswing.
Momentum investing aims to capitalise on the continuation of existing market trends. The top performing funds such as UTI Nifty200 Momentum 30 Index Fund and Motilal Oswal Nifty 200 Momentum 30 Index Fund have given returns of around 60% in one year.
As mid-caps and small-caps have been performing well, momentum funds have been quick to capitalise by launching specialised funds focused on these areas. In fact, assets under management of momentum funds have soared over four times to Rs 15,100 crore in August this year from Rs 3,500 crore during the same month last year.
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Robust returns
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The robust returns of momentum funds in the last one year is because of the overall rally in the broader market. Regular rebalancing ensures that underperforming assets are replaced promptly with higher-momentum investments, further enhancing their appeal. The combination of market trends, investor behaviour, and strategic agility enabled momentum funds to deliver exceptional returns during periods of market expansion.
Nirav Karkera, head, Research, Fisdom, says momentum funds perform particularly well during sustained market uptrends, as they concentrate on assets with positive momentum. “These can be beneficial for those seeking to enhance portfolio returns by combining them with other strategies, like value or quality investing,” he says.
Soumya Sarkar, co-founder, Wealth Redefine, an AMFI registered mutual fund distributor, says the performance of momentum funds is closely linked to market trends. “If the market experiences a downturn, these funds may also face short-term losses. Therefore, it is crucial to stay invested for an extended period to ride out market volatility,” he says.
Momentum indices
Investors exploring momentum indices have several options, each with distinct advantages and risks. The Nifty200 Momentum 30 Index offers exposure to top-performing large-cap and mid-cap stocks,
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