UTI Nifty200 Momentum 30 Index Fund

Last updated: 23 Feb, 2021 | 10:33 am

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.

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Past performance is not indicative of future returns. Please consider your specific investment requirements, risk tolerance, goal, time frame, risk and reward balance and the cost associated with the investment before choosing a fund, or designing a portfolio that suits your needs. Performance and returns of any investment portfolio can neither be predicted nor guaranteed.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

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