UTI Nifty200 Momentum 30 Index Fund

Basic details

Investment Approach

• The fund will invest in equity and equity-related securities and portfolio replicating the composition of the Nifty200 Momentum 30 Index, subject to tracking errors

What is the Nifty200 Momentum 30 Index?

• This index chooses 30 stocks from the Nifty 200 based on certain criteria which indicates momentum investing.



• Stocks are selected on the basis of their 6 months and 12 months volatility adjusted returns - known as normalized momentum score. Stock weights are based on a combination of the stock’s normalized momentum score and its free-float market capitalization.
• Each constituent in the index is capped at 5%. 
•  This investing style is currently available in India through alternative investment vehicles. The scheme is a low-cost index fund which tracks the Nifty200 Momentum 30 Index passively and endeavors to achieve return equivalent to the underlying index while minimizing tracking error.

Why momentum investing?

• UTI Nifty200 Momentum 30 Index Fund is a smart-beta strategy, based on the premise that Momentum strategy would deliver good returns in the long-run. Empirical research done globally suggests that momentum strategy has performed well over in the long-term. 
• Since inception i.e., April 1, 2005 the index (including dividends) has grown ~16 times as compared to Nifty 200 growth of 12 times and Nifty 50 growth of 8 times.

Current constituents of Nifty200 Momentum 30 Index

• The table below shows the current constituents of this index.



• The top 5 companies include Wipro, M&M, Infosys, HCL Tech and JSW Steel. 

Comparison with Nifty 50

• While the fund has outperformed Nifty 50 over a long-term horizon, the fund has underperformed the Nifty 50 over certain periods. This strategy has underperformed in cases when the market is recovering from a crash, or when it is range-bound, or the rally in Nifty 50 is being led by a handful of stocks. This may be due to the fact that there is a cap of 5% on the momentum stock. 
• Further, the fund has a higher risk than the Nifty 50. Momentum investing, by its very nature is a high-risk and high-churn investing strategy. As shown in the table below, the fund has a higher Standard Deviation than the Nifty 50.
• During bearish phases, the momentum index investor is likely to sustain higher losses.

Final take

This index has not been able to beat Nifty during the bear-market phase, and hence has a lower downside protection as compared to Nifty 50. This means that investing in such a strategy entails high risk, as less downside protection during market declines. The fund is suitable in case of aggressive investors, with a long-term investment horizon of greater than five years. First-time investors are better off with investing in diversified large-cap equity mutual funds, with lower volatility.