Momentum funds in India are gaining traction as investors seek to profit from trending stocks. These funds invest in securities with strong recent performance, thus betting on continued price rises. These funds are a dynamic choice of investors. What are they, and should you invest? Let’s explore.
What Are Momentum Funds?
Momentum funds in India are equity mutual funds that invest in stocks exhibiting strong recent performance, under the belief that these trends will continue. These funds employ a systematic approach. They select stocks based on criteria such as price growth over the past 6 to 12 months. Popular benchmarks for these funds include indices like the Nifty 200 Momentum 30 and Nifty 500 Momentum 50. These track the top-performing stocks within their respective universes.
Benefits: High Returns and Diversification
These funds in India capitalize on market rallies, thus offering strong returns in bullish phases. In 2024, Nifty 500 Momentum 50 TRI returned 65%, outpacing Nifty 50’s 31%, per NSE data. They diversify across large, mid, and small caps, thus reducing reliance on single stocks. Active management, as in Samco Active Momentum Fund, uses algorithms for real-time rebalancing, boosting gains. In addition, professional expertise minimizes guesswork for investors.
Who Should Invest in These Funds?
Momentum funds in India suit risk-tolerant investors with medium- to long-term horizons, ideally 5+ years, to weather volatility. They also complement value or quality funds in a diversified portfolio, with experts suggesting a 10-20% allocation. In 2024, factor funds saw ₹5,000 crore inflows, half from momentum. Learn more at the SEBI website.
Risks and Considerations:
While these funds offer the potential for high returns, they come with inherent risks:
- Market Reversals: Sudden changes in market trends can also lead to significant losses.
- High Volatility: These funds can be 10-15% more volatile than broader indices like the Nifty 50.
- Overtrading: Frequent buying and selling can lead to higher transaction costs and potential tax liabilities.
- Liquidity Risk: Some momentum stocks may have low liquidity, making it difficult to enter or exit positions without significantly impacting the stock’s price.
Conclusion:
Momentum funds in India thus present an attractive investment avenue for those seeking to capitalize on market trends. While they offer the potential for substantial returns, it’s crucial to be aware of the associated risks and to invest with a clear strategy and understanding. Ready to ride the trend? Explore more fund insights now!
– Ketaki Dandekar (Team Arthology)
Read more about Momentum Funds here – https://www.investopedia.com/momentum.asp