Rocket or Rollercoaster? Must You Leap onto the Momentum Mutual Fund Bandwagon Today?

Momentum mutual funds are making headlines as they spearhead India's market revival, posting double-digit returns and enticing investors thirsty for speedy returns. But is it the best time to invest-or is it a dangerous time to take the plunge?

 

Top Performers:

The momentum funds that bet on stocks that have had great recent performances have performed better than the larger market. The Nifty200 Momentum 30 index rose 11% since April 2025, beating the 7.8% surge in the Nifty 500. Such funds flourish during bull phases, and they are the darlings of the mutual fund universe these days.

 

How They Work:

Trailing momentum models by using quantitative models, momentum funds pursue stocks that have winning streaks, hoping that "winners keep winning." This strategy can produce excess returns in bull markets and prevents emotional investing errors.

 

The Risk Factor:

Momentum funds are not for the faint of heart. Their fortunes can reverse quickly when markets change, as they did in late 2024. They involve high volatility and constant portfolio turnover, so big winners can become steep losers in a short time. Experts caution that following a standout year, momentum strategies tend to underperform, particularly if market leadership changes.

 

Investor Advice:

Financial planners advise discretion. Momentum funds are best for bold investors willing to take high-risk bets and who closely monitor market trends. The majority of people can have a safer journey with a diversified portfolio and large-cap or value funds.

 

Bottom Line:

Momentum mutual funds are on a tear, but their rollercoaster ride is best for risk-takers only. Don't blindly follow past performance-know your risk tolerance before you jump.

 

Sources: Economic Times, Groww, Morgan Stanley