Understanding Momentum Investing and the Axis Nifty500 Momentum 50 Index Fund3 min read
What is Momentum Investing?
Momentum investing is a strategy1 that focuses on the trend of investments, explicitly buying assets going up in price and selling them when they decline. The idea is to “ride the wave” of an asset’s price momentum. This strategy is driven by the belief that trends in the market often persist for a period before reversing.
How Does Momentum Investing Work?
Momentum investing relies on technical analysis and historical price data to identify assets with strong upward trends. It focuses solely on price trends, following the principle of “buy high and sell higher.”
Why Momentum Investing?
Momentum investing can be particularly effective in volatile markets with more pronounced trends.2 It also capitalizes on investor psychology and behavioural biases, which can lead to market inefficiencies.3
The Power of Momentum in Volatile Markets
Imagine a surfer riding a massive wave. They don’t need to know why the wave is so big; they just need to trust their skill and ride it to shore. That’s momentum investing in a nutshell. It’s about identifying those trends and capitalizing on them, regardless of the underlying reasons.
In volatile markets, where prices can swing wildly, momentum investing can be particularly effective. It’s like having a compass in a storm. While others are panicking and making irrational decisions, momentum investors can stay focused on the trend and navigate the choppy waters.
The Psychology Behind Momentum
Why does momentum investing work? It all comes down to human psychology. Investors are not always rational. They tend to overreact to news, follow the crowd, and get caught up in the hype. These biases create opportunities for momentum investors to profit.
For example, when a company announces good news, its stock price may not react immediately.4 Investors need time to digest the information and start buying. This creates a gradual upward trend that momentum investors can identify and exploit.
Axis Nifty500 Momentum 50 Index Fund
The Axis Nifty500 Momentum 50 Index Fund5 is an open-ended index fund that offers exposure to India’s top 50 momentum stocks6, irrespective of size and sector. The fund tracks the performance of the Nifty500 Momentum 50 Index, which selects stocks based on their risk-adjusted momentum scores over the past 6 to 12 months.
Features of Axis Nifty500 Momentum 50 Index Fund:
- Complements Other Strategies: Momentum investing can be a valuable addition to a diversified portfolio, complementing other investment styles like value or quality investing.
- Passive Investing Advantage: The fund eliminates selection bias and provides easy and affordable access to the top 50 momentum stocks.
1https://www.investopedia.com/terms/m/momentum_investing.asp
3https://fastercapital.com/content/Taming-Market-Volatility–How-Momentum-Funds-Offer-Stability.html
4https://www.ravenpack.com/research/stock-market-reaction-to-news-sentiment/
5https://www.axismf.com/cms/sites/default/files/NFO/KIM-AxisNifty500Momentum50IndexFund.pdf
Disclaimer: Mutual Fund investments are subject to market risks, read all scheme-related documents carefully. This communication is purely for investor awareness and should not be considered as advice or a recommendation. Paytm Money Ltd. SEBI Reg No Broking – INZ000240532. NSE (90165), BSE( 6707), Regd. Office: 136, 1st Floor, Devika Tower,1 Nehru Place, Delhi – 110019. For more details, visit www.paytmmoney.com.
