What Is Momentum Index Fund, Which Provides Huge Returns To Investors?

There is currently an uptrend in the stock market. A huge rise has been observed in some stocks. They have left many stocks behind in terms of profitability. This dynamic situation creates an opportunity to capitalize on the market momentum through strategic products such as smart beta funds.

NSE data shows that the broad-based Nifty 50 underperformed strategy-based indices in terms of returns in FY24. While Nifty 50 has given a return of 31 per cent. Some strategy-based indices such as Nifty 500 Value 50 gave returns of 65 per cent. Nifty Alpha 50 gave a return of 61 per cent and Nifty 100 Alpha 30 gave a return of 67 per cent.

Interestingly, Nifty Low Volatility 50, Nifty 100 Low Volatility 30 and Nifty Quality Low Volatility 30 generated higher returns than Nifty 50 with lower volatility than the broad-based indices. Smart Beta funds select stocks using momentum, volatility, quality and value strategies.

NFO of this open-ended fund?

The NFO of Nippon India Mutual Fund’s Nifty 500 Momentum 50 Index Fund opened on September 11 and will close on September 25, 2024. The “buy low, sell high” strategy is a traditional strategy. The Nifty 500 Momentum 50 index offers investors the opportunity to earn more in the medium to long term by using the strategy of buying high and selling high. Vishal Ahuja of Blue Lake Capital Management says that it combines the features of passive investing. In this, selection is done with active investment based on rules and using technical factors such as the momentum factor.

How do momentum index funds work?

Nippon India Nifty 500 Momentum 50 Index Fund tracks the Nifty 500 Momentum 50 TRI, which consists of the top 50 stocks with the highest Momentum Score based on 6-month and 12-month volatility-adjusted price returns. The index includes stocks across 13 sectors. They are reconstituted every year in June and December. The basic principle governing momentum index funds is that stocks have performed relatively strongly in the recent past and vice versa.

Stringent selection criteria go a long way in protecting the interests of investors. The most important part is that the index does not include stocks with low liquidity. Companies where the promoters’ pledged shares exceed 20 percent and non-F&O shares make the circuit for more than 20 percent of the trading day are also excluded. This provides security to investors and there is also scope for better returns.