Here’s why midcap momentum index funds are the boost your investments need

Here’s why midcap momentum index funds are the boost your investments need

With a surge in equity markets in recent times, there has been much discourse on midcap and smallcap index funds. As per statistics revealed by the Association of Mutual Funds in India (AMFI), the interest in midcap funds has spiked—with net inflows in the category increasing from around Rs 83,000 crore in March 2018 to over Rs 7 lakh crore in March 2023. This shows a staggering increase in CAGR, as much as 54%, during the given period.

For investors, it is important to select the right kind of midcap funds to ensure their wealth grows over time. That’s where momentum funds appear in the picture. As the name suggests, it’s a strategy to boost investments that focuses on the philosophy of ‘buy high and sell higher’. What does it mean? It simply means that an individual buys a particular stock when it’s growing and sells it before it reaches the stage of poor performance.

In a nutshell, it is about continuing to ride the winning streak by zeroing in on stocks that are likely to outperform in the future.

With respect to midcap index funds, momentum investing aims to generate long-term capital appreciation from a portfolio of midcap stocks that are aligned to the midcap momentum index. One of the strategies that most investors go for is the Nifty Midcap150 Momentum 50 Index.

The Nifty Midcap150 Momentum 50 Index is a preferred move for investors who are looking to grow their wealth over time. The index attempts to track the performance of the top 50 companies that come under the Nifty Midcap 150. These companies are targeted based on their Normalized Momentum Score—which means they have showed consistent performance in their price, in the last six to 12 months. Due to this, they have been generating higher alpha as compared to midcap index.

There are many investors who are confused if the Nifty Midcap150 Momentum 50 Index is similar to the Midcap Index—however, here’s where the difference lies. While companies in the midcap index revolve around free float market capitalisation, those that are part of the momentum funds include the stock’s Normalized Momentum Score combined with its free float market capitalisation. 

Momentum-based indices including Nifty Midcap150 Momentum 50 Index are favoured by investors. That’s because it is a rule-based investing system that invests in companies that have been doing well in stock performance. The idea is to choose outperformers that have exhibited good returns over a period of time. Such stocks must be listed for over a year to track its performance.