Since the launch of the first momentum fund in 2021, the number of momentum-based funds has climbed to 40, surpassing value investing (38 funds) and quality investing (32 funds), which have existed since 1994, according to Value Research.
As of September, value funds stood at 38, while quality funds were at 32, according to data from Value Research.
The reason: a strong run of outperformance by momentum in recent years, which has prompted asset management companies to roll out new momentum funds to capture surging investor interest.
The benchmark BSE 500 Momentum 50 Total Return Index has delivered 34.24% compound annual growth rate (CAGR) returns over the past five years since 2020—beating the BSE 500 Quality 50 Total Return Index and the BSE 500 Total Return Index for value, which returned 23.28% and 20.26% CAGR, respectively. These are point-to-point returns.
The momentum index has been back-calculated to show historical performance prior to the launch of the first fund in 2021.
According to data from Morningstar, value funds have ₹2.19 trillion in assets under management (AUM), momentum funds ₹21,916 crore, and quality funds ₹62,408 crore.
What is momentum investing?
Momentum refers to buying stocks already in an upward trend that have shown strong recent performance, with fund managers aiming to catch them early in their rising phase.
The number of momentum-focused indices launched by exchanges since the pandemic has been the highest, compared to other factor indices, reflecting growing industry adoption, said Viraj Gandhi, chief executive, Samco Mutual Fund, which offers one active momentum fund, the Samco Active Momentum Fund.
Gandhi added that the availability of these momentum indexes allowed fund managers to easily build portfolios based on momentum, leading to a rise in passive momentum funds.
The National Stock Exchange has launched seven momentum-based indices since 2020, compared with two quality and just one value index in the same period. The BSE has launched one momentum and one quality index over that time.
Swarup Mohanty, vice chairman and chief executive officer, Mirae Asset Investment Managers (India), said that the truth of the industry is that funds are launched to garner investors. Mirae Asset offers four passive momentum funds.
“Many times funds get launched when investors favour them (on the basis of past performance) like momentum funds. However, that is not how product launches should ideally happen as a fund performing well in this cycle will likely fall out of favour when the cycle turns. And investors should be wary of this fact when selecting funds on near term past performance, ” Mohanty said.
Recent performance has stumbled
Yet, momentum funds’ short-term returns have faltered even as its long-term record shines.
In the past year, only 16% of momentum funds have outperformed their benchmarks, compared with 31% of value funds, according to Value Research. Quality funds have done even worse: none have beaten their benchmark in the past year.
Momentum factor has outperformed over a particular period, but there are timeframes in which momentum factor does not work, said Sanjay Bembalkar, Head of Equity at Union Asset Management Co. Pvt. Ltd.
“At the current time, when markets have been stagnant there is strong sector rotation within the broader market. Heightened volatility from external factors like geopolitics and tariff is vitiating the current price trend which the momentum factor relies on,” Bembalkar added.
Gandhi of Samco Mutual Fund offered a different view. He said that looking at a 20-year history from 2005 to 2025, and doing a rolling comparison of returns rather than a point-to-point one, momentum has generated a 7.88% alpha over the Nifty 50 index on a five-year rolling basis. Quality has generated a 4% alpha, and value a 2.43% alpha over the same period.
Gandhi also said five-year rolling returns for momentum show it has outperformed the benchmark 98.2% of the time.
Who should invest—and how much
A savvy investor who understands the role of passive and active strategies can use momentum funds to add sharper focus to their portfolio, said Anand Vardarajan, chief business officer, at Tata Asset Management.
“Unlike passive funds, which simply mimic the index and include both winners and losers, momentum funds apply specific filters to identify stocks with strong recent performance. By analyzing the index through a momentum lens, these funds offer a more refined selection based on historical performance trends,” Vardarajan added.
Bembalkar from Union AMC said investors should approach momentum funds with a long-term horizon of at least five years. He recommended entering and exiting via the SIP or STP route, and limiting total thematic fund exposure. Within a portfolio, momentum funds could have a 5-10% allocation, he said.
