Momentum Funds

A Momentum Fund is an equity mutual fund or ETF that follows a systematic strategy of investing in stocks that have exhibited the strongest recent price performance — based on the momentum factor, which is one of the most robustly documented return premiums in academic finance and empirical market data globally. The momentum strategy systematically buys stocks with the highest trailing 6 to 12-month price returns (relative momentum) while avoiding or selling recent underperformers, with portfolio rebalancing at regular intervals. In India, NSE has launched several momentum-based indices — including the Nifty 200 Momentum 30 Index (selecting 30 highest-momentum stocks from the Nifty 200 universe), which has historically delivered significantly higher returns than the Nifty 200 parent index over long periods. Momentum Index Funds and ETFs tracking these indices are now available from Indian AMCs including UTI Mutual Fund and Mirae Asset. Academic and market evidence confirms that momentum strategies generate excess returns over long periods but experience sharp drawdowns during sudden market reversals — momentum portfolios can fall significantly more than the broader market during sharp corrections when high-momentum stocks undergo rapid mean reversion. For Indian investors, momentum funds are best suited for a satellite portfolio allocation combined with a core passive large-cap holding, managed with a long investment horizon of at least five to seven years.