Nippon India unveils NFO focused on momentum investing

Nippon India Mutual Fund has announced a unique new fund offer based on the momentum theme.

The Nippon India Active Momentum Fund Strategy Fund will be open for subscription between February 10 and 24.

Factor investing follows a disciplined, rules-based approach that reduces emotional decision-making and human bias. It rests on fundamental attributes of stocks such as alpha, low volatility, quality, value, and growth.

The new fund offer is based on one such factor: momentum, which focuses on stocks that persist in the same direction over time.

The concept is based on the idea that assets that have performed well in the past may continue to perform well in the future, and those that have underperformed may continue to show underperformance.

In a typical year, momentum as an index tops returns on a cumulative basis (around 8 times), and the Nifty 500 Momentum 50 index outperforms the Nifty 500 in 13 out of the last 19 years.

However, at the decisive turns, momentum portfolios can be prone to sharp underperformance like in the case of early pandemic phase and the global financial crisis.

To counter this, the fund strategy attempts to have an optimal blend of technical (price momentum) and fundamental factors (earnings revision).

The fund will employ conditional indicators such as beta and minimum volatility to amplify the benefit of a market uptrend and minimise volatility during the down cycle.