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

Looking to boost your portfolio returns? Momentum index funds might be the high-risk, high-reward strategy you need. Here’s everything you need to know before investing.
Introduction
Momentum investing has become a popular strategy among investors aiming to capitalize on market trends. Momentum indexes systematically select stocks that have strong recent performance, with the expectation that these stocks will continue to outperform. Recently there are several AMCs that have come up with several momentum index funds, hence it is important for us to understand about momentum indexes before considering for investment. In this article we would talk about Momentum Index, 6 Momentum Index Mutual Funds, their past performance and who should invest in such index mutual funds.

What is a Momentum Index?
A Momentum Index is a stock market index that selects stocks based on their recent performance or price momentum. The underlying principle is simple. Stocks that have been rising in price are expected to continue doing so, while those that have been falling are likely to keep declining. Momentum indexes are constructed using quantitative rules, including criteria like past returns, relative strength, and other momentum indicators.
Key Features of Momentum Indexes

Trend-Following Strategy: Momentum indexes are built on the concept of following market trends. Stocks that have shown strong upward price movement are included in the index, while those with weaker performance are excluded.
Systematic Selection: Stock selection is purely quantitative, following pre-set rules such as past returns over defined periods (e.g., 6 months or 12 months). This removes emotional biases from the stock selection process.
Regular Rebalancing: To ensure that the index remains focused on current momentum stocks, rebalancing is generally done either quarterly or semi-annually. This helps the index stay aligned with prevailing market trends.
Higher Turnover: Momentum indexes tend to have higher turnover compared to traditional indexes because stocks are frequently added or removed based on their momentum scores.
Sector Diversification: Although momentum indexes can have concentrated positions in certain sectors due to prevailing trends, they still maintain sector diversification to manage risk.

Are Momentum Indexes Volatile?
Momentum indexes are generally more volatile than traditional market-cap-weighted indexes, such as the Nifty 50 or S&P BSE Sensex. This higher volatility is due to the momentum strategy’s focus on stocks that are rapidly moving, which can lead to significant swings during market corrections or downturns. While momentum indexes can deliver superior returns in bull markets, they may underperform during periods of high volatility or market reversals.
List of Momentum Indexes in India, Performance and Strategy
There are a variety of momentum indexes in India catering to different market segments, including large-cap, mid-cap, and small-cap stocks. Below are some of the prominent momentum indexes available in the Indian market (Source: Niftyindices – Strategy Indices)

Nifty200 Momentum 30 Index

About the index: This index consists of the top 30 companies with the highest momentum scores from the Nifty 200 universe. Momentum scores are based on six-month and twelve-month price returns, adjusted for volatility.
Performance: The index tends to outperform during bullish market conditions but can be more volatile during corrections. It has historically delivered strong returns compared to broader indexes like Nifty 50.

Annualised returns Since inception – 21.8%
5 Years Annualised returns– 30.5%
1 Year return – 68.9%

Nifty Midcap150 Momentum 50 Index

Description: It includes the top 50 stocks with the highest momentum of the Nifty Midcap 150 universe, providing exposure to mid cap stocks with strong price trends.
Performance: This index shines during midcap rallies, offering substantial returns but with a higher risk profile compared to large-cap-focused momentum indexes.

Annualised returns Since inception – 25.4%
5 Years Annualised returns– 40%
1 Year return – 66.1%

Nifty500 Momentum 50 Index

Description: This index selects 50 stocks from the Nifty 500 with the highest momentum scores, capturing high-momentum stocks across the entire market spectrum.
Performance: It offers a diversified exposure to momentum stocks, balancing risks across different market caps. Performance is closely tied to overall market trends.

Annualised returns Since inception – 24.9%
5 Years Annualised returns– 35.7%
1 Year return – 69.5%

Nifty500 Multicap Momentum Quality 50 Index

Description: Combines momentum and quality factors by selecting stocks that exhibit both strong price momentum and high-quality metrics like earnings stability and financial health.
Performance: This hybrid approach aims to reduce some of the volatility typically associated with momentum strategies, offering a balanced return profile.

Annualised returns Since inception – 23.8%
5 Years Annualised returns– 32.5%
1 Year return – 71%

Nifty MidSmallcap400 Momentum Quality 100 Index

Description: Focused on mid and small-cap stocks, this index selects 100 companies with the highest momentum and quality scores from the Nifty MidSmallcap 400.
Performance: Known for substantial upside potential during growth phases, this index’s inclusion of quality factors helps mitigate some of the risk associated with smaller stocks.

Annualised returns Since inception – 24.5%
5 Years Annualised returns– 34.3%
1 Year return – 58.4%

Nifty Smallcap250 Momentum Quality 100 Index

Description: Targets the small-cap segment by selecting 100 momentum and quality stocks from the Nifty Small Cap 250, capturing high-growth potential among smaller companies.
Performance: This index performs exceptionally well during small-cap rallies but is highly volatile, reflecting the high-risk nature of small-cap investing.

Annualised returns Since inception – 24.5%
5 Years Annualised returns– 34.7%
1 Year return – 51.7%

Performance of Momentum Indexes compared to Nifty50
Momentum indexes in India have generally outperformed broader market indexes during bullish phases due to their focus on trending stocks. For example, the Nifty 200 Momentum 30 Index has consistently outperformed the Nifty 50 during periods of market upswings. However, momentum strategies are sensitive to market corrections and may see sharper declines during periods of increased volatility which indicates that these indexes are for high risk investors only.
AMCs Offering Momentum Index Mutual Funds in India
Several Asset Management Companies (AMCs) have launched mutual funds that track momentum indexes earlier and recently, providing investors with an easy way to participate in investing in such strategies.

ICICI Prudential Nifty 200 Momentum 30 Index Fund
Bandhan Nifty 200 Momentum 30 Index Fund
UTI Nifty 200 Momentum 30 Index Fund
Motilal Oswal Nifty 200 Momentum 30 Index Fund
Edelweiss Nifty Midcap150 Momentum 50 Index Fund
Tata Nifty Midcap150 Momentum 50 Index Fund

We expect AMCs to launch all other momentum index mutual funds in the coming months to attract investors.
Investors need not invest in all these 6 index funds. They can pick-up one from an index and invest.
Which is the Best Momentum Index Funds in India?
This depends on your risk appetite. While all momentum index funds are very high risk, Nifty 200 momentum index funds have a lower risk (which contains large cap and mid cap) compared to midcap150 (which has only Midcap) momentum funds.
Momentum Index Mutual Funds – Who should invest?
Momentum indexes provide a systematic way to capture trending stocks, offering the potential for high returns during market rallies. With the availability of momentum index mutual funds, investors can easily tap into this strategy. Momentum investing in mutual funds can be a valuable addition to a diversified mutual fund portfolio, especially for those seeking to enhance returns during growth phases of the Indian market.
However, higher volatility and sensitivity to market corrections make them suitable primarily for high risk investors.
Are you ready to invest in momentum index funds? Share your thoughts or experiences in the comments below!

Suresh KP is the Founder of Myinvestmentideas. He is NISM Certified – Investment Adviser and NISM Certified – Research Analyst. He has been analyzing financial markets in the last 20 years.He can be reached at suresh@myinvestmentideas.com Latest posts by Suresh KP (see all)