Investment Guide

What are Momentum Funds?

By admin
23 October 2025
3 mins read

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If you invest in mutual funds, you probably know that there is no single strategy. Instead, there are many strategies designed to generate returns. Some focus on the long-term stability of companies, while others aim to take advantage of short-term market trends.

One such strategy is momentum investing, which aims to profit from stocks or assets that are currently performing well. And momentum funds follow this exact same approach. But what is a momentum fund, and how can they fit into your investment strategy?

What is a Momentum Fund?

Momentum mutual funds invest in stocks that have shown strong recent performance. The idea is based on the momentum factor in investing, which relies on the belief that stocks which are rising are likely to keep rising in the short term.

These funds select stocks using performance-based indicators, like past returns and market data, rather than company valuations or business strength. Some of the best momentum funds include Edelweiss Nifty Midcap150 Momentum 50 Index Fund and Tata Nifty Midcap 150 Momentum 50

Index Fund.

Features of Momentum Funds

Below are some unique features of these funds.

Trend-based investing- These funds aim to capitalise on upward market trends by investing in stocks that have demonstrated robust price performance

Quantitative analysis- Stock selection is based on observable metrics like past price movements, trading volume, and relative strength, reducing emotional biases in investment decisions

Short- to medium-term focus- These funds focus on short- to medium-term price trends rather than long-term fundamental analysis.

Pros and Cons of Momentum Funds

The table below shows the advantages and disadvantages of momentum funds.

Pros	Cons
Can deliver higher returns in rising markets by investing in stocks that are already performing well.	More risky during market downturns, as they may experience significant losses.
Allows investors to benefit from short- to medium-term price trends, which can lead to quicker gains.	Tends to perform poorly in sideways or falling markets with no clear upward trend.
Helps diversify your portfolio by focusing on price momentum rather than just company size or value.	Requires constant monitoring and timely decision-making, which may not suit all investors.

Who Should Invest in Momentum Funds?

Momentum funds may suit investors who-

- Are looking for capital growth over a longer time.

- Want to add a more aggressive strategy to their portfolio.

- Can handle market ups and downs.

- Are willing to invest for at least five years.

To begin investing, visit the Tata Capital Moneyfy website or download our app today!

FAQs

How does a momentum fund work?

A momentum fund invests in stocks with strong recent price trends. It uses strategies like absolute or relative momentum to pick stocks expected to continue moving in the same direction.

Is a momentum mutual fund good?

Momentum funds can offer higher returns in rising markets, particularly for investors with a high-risk tolerance. However, they may underperform in volatile or declining markets.

What is an example of momentum investing?

If a stock rises from Rs 500 to Rs 575 in a month, a momentum fund might invest in it, expecting the trend to continue based on its recent price movement.

Which momentum fund is best?

It’s difficult to pick out a single fund as the best momentum fund in India. You can select from a range of momentum funds based on their past performances, Assets Under Management (AUM), expense ratios, and fund managers’ track records. Some of the top momentum funds in India include UTI Nifty200 Momentum 30 Index Fund, Quant Momentum Fund, Kotak Active Momentum Fund, and ICICI Prudential Active Momentum Fund.

Which Nifty 500 Momentum 50 Index Fund is best?

The Nifty 500 Momentum 50 Index fund tracks the performance of the top 50 companies included in the Nifty 500 index. Some of the top Nifty 500 Momentum 50 Index Funds in India include Motilal Oswal Nifty 500 Index Fund, UTI Nifty 500 Value 50 Index Fund, SBI Nifty 500 Index Fund, and Nippon India Nifty 500 Quality 50 Index Fund. Comparing expense ratios, historical returns, and tracking accuracies can help you select the best fund.

What are the risks of momentum investing?

Momentum investing can be rewarding but also carries significant risks. It involves buying stocks that have recently shown strong performance in the hope that the trend will continue. However, these strategies can be vulnerable to sudden market reversals when trends shift. Momentum investing can also drive stock prices to temporarily inflated levels, making timing your entry and exit crucial to avoid potential losses.