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Best Momentum Mutual Funds in India | Equity Mutual Funds List

Get the Top Momentum Mutual Funds in India in 2024:

Last updated on : 13 Sep 24

What is a Momentum Mutual Fund?

A Momentum Mutual Fund is a type of investment fund that follows the momentum investing strategy. Momentum investing involves capitalizing on the continuation of existing market trends. Essentially, these funds focus on stocks that have shown an upward price movement over a certain period, with the expectation that these trends will continue in the short to medium term. The core idea behind momentum investing is that stocks that have performed well in the past will continue to do so, while those that have underperformed will likely continue their downward trend.

Momentum mutual funds are designed to take advantage of this trend-following strategy by selecting a portfolio of stocks that have shown strong price momentum. These funds are actively managed, meaning that the fund manager frequently adjusts the portfolio to capture the best-performing stocks and avoid those that are losing momentum.

Best Momentum Mutual Funds of 2024

The best momentum mutual funds continue to stand out as a strategic investment choice for investors seeking capital appreciation by capturing upward market trends. Below is a carefully curated list of the top Momentum Mutual Funds, selected based on performance, consistency, and fund management expertise.

S No.

Best Momentum Mutual Funds

ISIN

AMFI

1

Bandhan Nifty200 Momentum 30 Index Fund

INF194KB1DP9

150591

2

Edelweiss Nifty Midcap150 Momentum 50 Index Fund

INF754K01QD2

150902

3

ICICI Prudential Nifty 200 Momentum 30 Index Fund

INF109KC11D8

150452

4

Motilal Oswal Nifty 200 Momentum 30 Index Fund

INF247L01AV1

149800

5

Tata Nifty Midcap 150 Momentum 50 Index Fund

INF277KA1612

150738

6

UTI Nifty200 Momentum 30 Index Fund

INF789F1AUT5

148703

How Do the Best Momentum Funds Work?

The best momentum funds operate by tracking the momentum of individual stocks within a specified index or market. The fund managers employ a quantitative approach to identify stocks that have shown significant price appreciation over a particular timeframe, such as 6 to 12 months. The key metrics used to evaluate momentum include price changes, trading volumes, and relative strength indicators.

Once the momentum stocks are identified, the fund manager builds a diversified portfolio by including these stocks. The portfolio is regularly reviewed and rebalanced to ensure that it continues to hold stocks with the strongest momentum. Stocks that lose momentum are removed from the portfolio, and new momentum leaders are added.

The momentum strategy works on the assumption that stocks trending upwards will continue to do so due to factors like investor psychology, market sentiment, and technical patterns. However, it is important to note that this strategy may also involve higher turnover rates, leading to increased transaction costs and potential short-term volatility.

Who Should Invest in the Best Momentum Funds?

The best momentum funds are not suitable for every investor. They are particularly well-suited for investors who:

  1. Have a Moderate to High Risk Appetite: Since momentum investing involves chasing trends, it comes with higher volatility compared to traditional funds. Investors should be comfortable with the possibility of short-term losses.

  2. Seek Short to Medium-Term Gains: Momentum funds are designed for those looking to capitalize on market trends over a short to medium timeframe. If you have a long-term investment horizon, other strategies might be more appropriate.

  3. Desire Active Portfolio Management: Momentum mutual funds require active management and frequent rebalancing. Investors who prefer a more hands-off, passive approach might find these funds less appealing.

  4. Understand Market Dynamics: Momentum investing requires a solid understanding of market dynamics and investor behavior. Investors who are familiar with these concepts are better equipped to understand the potential risks and rewards of momentum mutual funds.

Factors to Consider While Investing in the best Momentum Funds in India

Investing in best Momentum Funds in India requires careful consideration of several factors to ensure that they align with your investment goals and risk tolerance. Here are some key factors to keep in mind:

  1. Market Conditions: Momentum investing tends to perform well in trending markets but may underperform during market corrections or periods of high volatility. Understanding the current market environment is crucial before investing in the best Momentum Funds in India.

  2. Fund Manager Expertise: The best Momentum Funds in India largely depends on the fund manager's ability to identify and capitalize on momentum stocks. Evaluate the fund manager's track record, experience, and investment strategy before making a decision.

  3. Expense Ratio: Thebest Momentum Funds in India often have higher expense ratios due to active management and frequent trading. Compare the expense ratios of different funds to ensure that the potential returns justify the costs.

  4. Turnover Rate: High turnover rates in best Momentum Funds in India can lead to increased transaction costs and tax liabilities. Consider the fund's turnover rate and how it might impact your overall returns.

  5. Historical Performance: While past performance is not indicative of future results, it can provide insights into how the fund has navigated different market conditions. Look for funds with a consistent track record of maintaining momentum.

  6. Risk Management: Given the higher risk associated with momentum investing, it's important to assess the fund's risk management strategies. This includes understanding how the fund mitigates potential losses during market downturns.

How to Invest in Momentum Funds?

Investing in momentum funds is a straightforward process, but it requires some research and planning. Here’s a step-by-step guide on how to get started:

  1. Research Available Funds: Begin by researching the momentum mutual funds available in the market. Look for funds with a strong track record, experienced fund managers, and a clear investment strategy.

  2. Assess Your Risk Tolerance: Before investing, evaluate your risk tolerance to ensure that a momentum fund aligns with your investment profile. Remember that these funds can be volatile and may not be suitable for conservative investors.

  3. Open an Investment Account: If you don’t already have one, you’ll need to open an investment account with a brokerage firm or through a mutual fund distributor. Many online platforms offer easy account opening processes.

  4. Choose the Right Fund: Once you’ve done your research, select the momentum fund that best matches your investment goals and risk tolerance. Review the fund’s prospectus and key information document before making a decision.

  5. Make the Investment: After selecting the fund, you can invest either as a lump sum or through a systematic investment plan (SIP). SIPs allow you to invest smaller amounts at regular intervals, which can help mitigate the impact of market volatility.

  6. Monitor Your Investment: Momentum funds require active monitoring to ensure that they continue to perform as expected. Keep an eye on the fund’s performance, and be prepared to make adjustments if necessary.

Taxation on Momentum Funds

The taxation of Momentum mutual funds is dependent on the duration of the investment. Any profits earned on the investment before one year has passed from the date of purchase will be considered short-term capital gains (STCG) and be subject to a 20% tax.

On the other hand, profits on an investment held for more than a year will be classified as long-term capital gains (LTCG). Tax is not charged on long-term capital gains if the total earning is less than or equal to Rs. 1.25 lakh during the financial year. However, if the amount is over Rs. 1.25 lakh, the additional amount will be taxed at a rate of 12.5% without indexation.

For instance, if the long-term capital gains of an equity mutual fund for a particular financial year is Rs. 3 lakh, then Rs. 1.25 lakh will be tax-exempt while the remaining Rs. 1.75 lakh will be taxed at 12.5%.

Major Advantages of Momentum Mutual Funds

Momentum mutual funds offer several advantages that make them an attractive option for certain investors:

  1. Potential for Higher Returns: By focusing on stocks that are already showing strong performance, momentum funds can potentially deliver higher returns compared to traditional funds.

  2. Capitalizing on Market Trends: Momentum investing allows investors to take advantage of prevailing market trends, potentially leading to quicker gains in trending markets.

  3. Diversification: Momentum mutual funds often hold a diversified portfolio of stocks from different sectors, which can reduce the overall risk compared to investing in individual momentum stocks.

  4. Active Management: The active management of momentum funds ensures that the portfolio is regularly updated to include the best-performing stocks, which can enhance the fund’s overall performance.

  5. Flexibility: Momentum funds are not limited to specific sectors or industries, providing fund managers with the flexibility to invest in the best opportunities across the market.

Risks Involved While Investing in Momentum Mutual Funds

While momentum mutual funds offer the potential for higher returns, they also come with certain risks that investors should be aware of:

  1. High Volatility: Momentum investing is inherently more volatile than other strategies. Stocks that are trending upward can quickly reverse course, leading to significant losses.

  2. Market Timing Risk: The success of momentum investing depends on accurately timing the market, which can be challenging even for experienced fund managers. Poor timing can result in missed opportunities or losses.

  3. Higher Transaction Costs: Due to the frequent trading required to maintain a momentum portfolio, these funds tend to have higher transaction costs, which can eat into overall returns.

  4. Short-Term Focus: Momentum funds often focus on short-term gains, which may not align with the long-term investment goals of some investors. The emphasis on short-term performance can also lead to higher portfolio turnover.

  5. Sector Concentration Risk: In some cases, momentum funds may become concentrated in specific sectors that are performing well, increasing the risk if those sectors experience a downturn.

FAQs

What is the difference between a momentum mutual fund and a traditional mutual fund?

Momentum mutual funds focus on stocks with strong recent performance, while traditional mutual funds may use various strategies, including value, growth, or index investing.

Are momentum mutual funds suitable for long-term investment?

Momentum mutual funds are generally better suited for short to medium-term investments due to their focus on capitalizing on current trends. Long-term investors may prefer a more diversified or passive approach.

How do momentum mutual funds handle market downturns?

During market downturns, momentum funds may struggle as trends reverse. Fund managers may adjust the portfolio by reducing exposure to underperforming stocks, but losses can still occur.

Can momentum mutual funds provide consistent returns?

While momentum funds have the potential for high returns, their performance can be inconsistent due to market volatility and the reliance on trend continuation.

What are the tax implications of investing in momentum mutual funds?

The frequent trading in momentum funds can result in short-term capital gains, which are taxed at a higher rate. It’s important to consider the tax implications based on your investment strategy and holding period.

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