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Momentum Investing: Nifty200 Momentum 30 & Nifty Midcap 150 Quality 50

Aggressive investors prefer the momentum strategy. Conservative investors prefer the quality strategy. Based on the two investment strategies, in this article, we will discuss two indices: Nifty200 Momentum 30 and Nifty Midcap 150 Quality 50 indices.
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Different risk profiles need different investment strategies

Some investors have an aggressive risk profile, based on which they expect high returns. These investors can follow the momentum strategy. On the other end are people who prefer safety and are content with low to moderate returns. These investors can follow the quality strategy. Based on the two investment strategies, this article will discuss two indices: Nifty200 Momentum 30 and Nifty Midcap 150 Quality 50 indices. We will also discuss the mutual fund schemes to invest in these indices.

What is momentum investing?

Momentum investing strategy involves investing in trending stocks (doing well price-wise). The strategy involves adding new stocks / holding existing stocks with price momentum, and removing laggards (stocks that have lost momentum). It works on the premise that stocks that have outperformed recently may continue to do so in the future also, and investors who invest in these stocks will benefit in the form of superior returns.

Nifty200 Momentum 30 Index

The “Nifty200 Momentum 30 Index” comprises 30 stocks from the Nifty 200 Index. The stocks are selected based on their Normalised Momentum Score. The score for each company is determined based on its 6-month and 12-month price return, adjusted for its daily price return volatility.

The weight for each stock is capped at 5%. The index is rebalanced semi-annually in June and December. The Nifty 200 Index, from which the 30 stocks are selected, comprises India's 100 large-cap and 100 mid-cap companies in market capitalisation.

Performance of the Nifty200 Momentum 30 Index

The index has a base date of 1st April 2005 and a base value of 1,000.

(Source: https://www.niftyindices.com/Factsheet/Factsheet_Nifty200_Momentum30.pdf))

Note: The above chart data is as of 31st December 2021.

The above chart shows that the index has done well in the last 16 years since its launch. It has multiplied shareholder wealth by a whopping 21 times in the last 16 years, thus giving a CAGR of around 21%.

How to invest in the Nifty200 Momentum 30 Index?

As of 5th January 2021, the only way to invest in the index is through the UTI Nifty200 Momentum 30 Index Fund. The fund closely replicates the Nifty200 Momentum 30 Index and aims to provide returns in line with the underlying index. Based on the index, the fund provides a simple and convenient way to add recent performers to your investment portfolio and get rid of recent non-performers. The fund lets you ride the market trends and benefit from them.

You can invest in the fund either through a lump sum or systematic investment plan (SIP). The fund doesn’t have any exit load, although it is recommended that you should invest for the long term. In the future, more AMCs are expected to launch index funds and ETFs with the Nifty200 Momentum 30 Index as the benchmark.

Comparison of returns given by Nifty 50, Nifty 200, and Nifty200 Momentum 30 indices

Let us see how a lump sum investment of Rs. 10,000 each in Nifty 50, Nifty 200, and Nifty200 Momentum 30 indices would have performed since 1st April 2005 (base date of Nifty200 Momentum 30).

(Source: www.utimf.com)

Note: The above chart data is as of 31st August 2021.

As seen in the above chart, the Nifty200 Momentum 30 with an investment value of Rs. 2.38 lakhs has clearly outperformed the Nifty 200 Index (Rs. 1.57 lakhs) and Nifty 50 Index (Rs. 1.05 Lakhs).

Nifty Midcap 150 Quality 50 Index

To benefit from the growth of mid-cap companies, an investor can invest in an active mid-cap fund or a mid-cap index fund. However, along with the high growth potential, mid-cap companies carry high risk also. Hence, an investor should invest in quality mid-cap companies through the Nifty Midcap 150 Quality 50 Index to reduce the risk.

The Nifty Midcap 150 Quality 50 Index comprises 50 quality mid-cap companies selected based on their quality score. The quality score for each company is determined based on three parameters: 

  1. Return on equity, 
  2. Financial leverage (except for financial services companies) and 
  3. Earnings per share (EPS) growth variability of each stock analysed during the previous five financial years.

Each of the above three parameters has been given equal weightage (33%) for selecting mid-cap companies into the index.

Performance of Nifty Midcap 150 Quality 50 Index

The weightage for each stock in the index has an upper cap of 5%. The index has a base date of 1st April 2005 and a base value of 1,000.

(Source: https://www.niftyindices.com/Factsheet/Factsheet_NIFTYMidcap150_Quality50.pdf)

Note: The above chart data is as of 31st December 2021.

The above chart shows how the Nifty Midcap 150 Quality 50 Index has grown from the base value of 1,000 in April 2005 to levels of around 17,500 as of 31st December 2021. The index has given a CAGR return of 18.74% since its inception.

How to invest in the Nifty Midcap 150 Quality 50 Index?

As of 5th January 2022, the only way to invest in the Nifty Midcap 150 Quality 50 Index is through the DSP Nifty Midcap 150 Quality 50 ETF. The DSP exchange-traded fund (ETF) allows you to participate in the growth story of quality mid-cap companies that are potential leaders of tomorrow. 

If you wish to buy one share of each of the 50 companies that are a part of the Nifty Midcap 150 Quality 50 Index, you will need more than Rs. 2 lakhs. However, through the ETF, you can buy fractional units of the same 50 companies at a much affordable amount. In the future, more AMCs are expected to launch index funds and ETFs with the Nifty Midcap 150 Quality 50 Index as the benchmark.

Comparison of returns given by the Nifty Midcap 150 and Nifty Midcap 150 Quality 50 indices

Let us see how a systematic investment plan (SIP) of Rs. 1,000 each in the Nifty Midcap 150 and Nifty Midcap 150 Quality 50 indices performed since April 2005.

(Source: https://invest.dspim.com/nfo/dsp-nifty-midcap150-quality-50-etf/docs/DSP-Midcap-150-Quality-50-ETF-NFO-Presentation.pdf)

Note: The above data is as of 29th October 2021.

As seen in the above image, the Nifty Midcap 150 SIP gave a return of 17.1% CAGR and the Nifty Midcap 150 Quality 50 SIP gave a return of 20.2% CAGR. 

Should you choose a momentum or quality investment strategy?

In this article, we discussed two investment strategies: Momentum and quality. As an investor, you must be wondering which one should you invest in? Well, it all depends on your risk profile. If you are an aggressive investor, you should go for the momentum strategy and consider investing in UTI Nifty200 Momentum 30 Index Fund. If you are a conservative investor, you should go for a quality strategy and consider investing in DSP Nifty Midcap 150 Quality 50 ETF.

Investing in equity mutual funds with the Glide Invest App

In the above section, we discussed the momentum and quality investment strategy. You can partner with the Glide Invest App for your financial planning journey to get recommendations for the appropriate mutual fund schemes based on your risk profile. You will get advice on planning and systematically investing towards your financial goals. 

With Glide Invest, you will get guidance for:

  1. A personalised risk profile assessment
  2. Identifying your financial goals
  3. Appropriate asset allocation
  4. Making a financial plan for each goal
  5. Automating the financial plan
  6. Review and analysis of your financial plan 
  7. Hand holding you till your financial goals are achieved

To start investing towards your financial goals, download the Glide Invest App from Google Play Store or Apple App Store and get started.

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