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?
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.
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.
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. |
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!
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.
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.
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.
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15 May 2025
3 mins read
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