6 Momentum Index Mutual Funds (Underlying index with 30% to 40% CAGR returns in final 5 years)

Trying to enhance your portfolio returns? Momentum index funds is likely to be the high-risk, high-reward technique you want. Right here’s every little thing you want to know earlier than investing.

Introduction

Momentum investing has turn out to be a preferred technique amongst buyers aiming to capitalize on market tendencies. Momentum indexes systematically choose shares which have robust latest efficiency, with the expectation that these shares will proceed to outperform. Not too long ago there are a number of AMCs which have give you a number of momentum index funds, therefore it is vital for us to grasp about momentum indexes earlier than contemplating for funding. On this article we might discuss Momentum Index, 6 Momentum Index Mutual Funds, their previous efficiency and who ought to spend money on such index mutual funds.

What’s a Momentum Index?

A Momentum Index is a inventory market index that selects shares based mostly on their latest efficiency or value momentum. The underlying precept is easy. Shares which were rising in value are anticipated to proceed doing so, whereas these which were falling are more likely to preserve declining. Momentum indexes are constructed utilizing quantitative guidelines, together with standards like previous returns, relative power, and different momentum indicators.

Key Options of Momentum Indexes

1. Development-Following Technique: Momentum indexes are constructed on the idea of following market tendencies. Shares which have proven robust upward value motion are included within the index, whereas these with weaker efficiency are excluded.
2. Systematic Choice: Inventory choice is only quantitative, following pre-set guidelines comparable to previous returns over outlined intervals (e.g., 6 months or 12 months). This removes emotional biases from the inventory choice course of.
3. Common Rebalancing: To make sure that the index stays centered on present momentum shares, rebalancing is usually executed both quarterly or semi-annually. This helps the index keep aligned with prevailing market tendencies.
4. Larger Turnover: Momentum indexes are inclined to have increased turnover in comparison with conventional indexes as a result of shares are steadily added or eliminated based mostly on their momentum scores.
5. Sector Diversification: Though momentum indexes can have concentrated positions in sure sectors as a result of prevailing tendencies, they nonetheless keep sector diversification to handle danger.

Are Momentum Indexes Unstable?

Momentum indexes are usually extra risky than conventional market-cap-weighted indexes, such because the Nifty 50 or S&P BSE Sensex. This increased volatility is as a result of momentum technique’s deal with shares which are quickly shifting, which might result in important swings throughout market corrections or downturns. Whereas momentum indexes can ship superior returns in bull markets, they could underperform in periods of excessive volatility or market reversals.

Record of Momentum Indexes in India, Efficiency and Technique

There are a number of momentum indexes in India catering to completely different market segments, together with large-cap, mid-cap, and small-cap shares. Under are a number of the outstanding momentum indexes out there within the Indian market (Supply: Niftyindices – Technique Indices)

1. Nifty200 Momentum 30 Index
   • In regards to the index: This index consists of the highest 30 firms with the very best momentum scores from the Nifty 200 universe. Momentum scores are based mostly on six-month and twelve-month value returns, adjusted for volatility.
   • Efficiency: The index tends to outperform throughout bullish market circumstances however could be extra risky throughout corrections. It has traditionally delivered robust returns in comparison with broader indexes like Nifty 50.
     • Annualised returns Since inception – 21.8%
     • 5 Years Annualised returns– 30.5%
     • 1 Yr return – 68.9%

2. Nifty Midcap150 Momentum 50 Index
   • Description: It consists of the highest 50 shares with the very best momentum of the Nifty Midcap 150 universe, offering publicity to mid cap shares with robust value tendencies.
   • Efficiency: This index shines throughout midcap rallies, providing substantial returns however with the next danger profile in comparison with large-cap-focused momentum indexes.
     • Annualised returns Since inception – 25.4%
     • 5 Years Annualised returns– 40%
     • 1 Yr return – 66.1%

3. Nifty500 Momentum 50 Index
   • Description: This index selects 50 shares from the Nifty 500 with the very best momentum scores, capturing high-momentum shares throughout your complete market spectrum.
   • Efficiency: It presents a diversified publicity to momentum shares, balancing dangers throughout completely different market caps. Efficiency is carefully tied to general market tendencies.
     • Annualised returns Since inception – 24.9%
     • 5 Years Annualised returns– 35.7%
     • 1 Yr return – 69.5%

4. Nifty500 Multicap Momentum High quality 50 Index
   • Description: Combines momentum and high quality elements by choosing shares that exhibit each robust value momentum and high-quality metrics like earnings stability and monetary well being.
   • Efficiency: This hybrid method goals to cut back a number of the volatility sometimes related to momentum methods, providing a balanced return profile.
     • Annualised returns Since inception – 23.8%
     • 5 Years Annualised returns– 32.5%
     • 1 Yr return – 71%

5. Nifty MidSmallcap400 Momentum High quality 100 Index
   • Description: Targeted on mid and small-cap shares, this index selects 100 firms with the very best momentum and high quality scores from the Nifty MidSmallcap 400.
   • Efficiency: Identified for substantial upside potential throughout progress phases, this index’s inclusion of high quality elements helps mitigate a number of the danger related to smaller shares.
     • Annualised returns Since inception – 24.5%
     • 5 Years Annualised returns– 34.3%
     • 1 Yr return – 58.4%

6. Nifty Smallcap250 Momentum High quality 100 Index
   • Description: Targets the small-cap phase by choosing 100 momentum and high quality shares from the Nifty Small Cap 250, capturing high-growth potential amongst smaller firms.
   • Efficiency: This index performs exceptionally effectively throughout small-cap rallies however is extremely risky, reflecting the high-risk nature of small-cap investing.
     • Annualised returns Since inception – 24.5%
     • 5 Years Annualised returns– 34.7%
     • 1 Yr return – 51.7%

Efficiency of Momentum Indexes in comparison with Nifty50

Momentum indexes in India have usually outperformed broader market indexes throughout bullish phases as a result of their deal with trending shares. For instance, the Nifty 200 Momentum 30 Index has constantly outperformed the Nifty 50 in periods of market upswings. Nonetheless, momentum methods are delicate to market corrections and may even see sharper declines in periods of elevated volatility which signifies that these indexes are for prime danger buyers solely.

AMCs Providing Momentum Index Mutual Funds in India

A number of Asset Administration Corporations (AMCs) have launched mutual funds that monitor momentum indexes earlier and lately, offering buyers with a simple technique to take part in investing in such methods.

1. ICICI Prudential Nifty 200 Momentum 30 Index Fund
2. Bandhan Nifty 200 Momentum 30 Index Fund
3. UTI Nifty 200 Momentum 30 Index Fund
4. Motilal Oswal Nifty 200 Momentum 30 Index Fund
5. Edelweiss Nifty Midcap150 Momentum 50 Index Fund
6. Tata Nifty Midcap150 Momentum 50 Index Fund

We count on AMCs to launch all different momentum index mutual funds within the coming months to draw buyers.

Buyers needn’t spend money on all these 6 index funds. They will pick-up one from an index and make investments.

Which is the Finest Momentum Index Funds in India?

This is determined by your danger urge for food. Whereas all momentum index funds are very excessive danger, Nifty 200 momentum index funds have a decrease danger (which incorporates giant cap and mid cap) in comparison with midcap150 (which has solely Midcap) momentum funds.

Momentum Index Mutual Funds – Who ought to make investments?

Momentum indexes present a scientific technique to seize trending shares, providing the potential for prime returns throughout market rallies. With the provision of momentum index mutual funds, buyers can simply faucet into this technique. Momentum investing in mutual funds is usually a priceless addition to a diversified mutual fund portfolio, particularly for these looking for to boost returns throughout progress phases of the Indian market.

Nonetheless, increased volatility and sensitivity to market corrections make them appropriate primarily for prime danger buyers.

Are you able to spend money on momentum index funds? Share your ideas or experiences within the feedback beneath!

Suresh KP is the Founding father of Myinvestmentideas. He’s NISM Licensed – Funding Adviser and NISM Licensed – Analysis Analyst. He has been analyzing monetary markets within the final 20 years.He could be reached at suresh@myinvestmentideas.com

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