Tata Mutual Fund has announced an open-ended equity scheme named Tata Nifty Midcap 150 Momentum 50 Index Fund that replicates the NIFTY Midcap 150 Momentum 50 Index.
The new fund offer (NFO) opened on October 4 and will close on October 17.
The fund will invest in securities covered by the NIFTY Midcap 150 Momentum 50 Index (TRI) and aims to provide returns, before expenses, based on the index's performance, subject to tracking error.
The fund house said the allocation would be around 95 per cent in index securities and up to 5 per cent in debt and money market instruments.
Detailing the scheme, fund manager Sailesh Jain said the momentum strategy considers the stock's past price performance over a defined period. He explains that a stock's strong performance could capture "a lot of good around the stock." Hence, once that trend is established, it may likely continue.
The minimum subscription amount of the scheme is Rs 5,000 per, and thereafter, in multiples of Re 1. This minimum amount is also applicable for switch-ins. Also, the scheme's exit load is 0.25 per cent of the relevant net asset value (NAV) if redeemed on or before 90 days from the date of allotment.
The fund house noted that many mid-cap stocks have turned into multi-baggers over the past five to 10 years, but the segment sees "a large dispersion of returns." Hence, there is a need for a filter to select the potential outperformers; in this case, momentum investing could be helpful.
Anand Vardarajan, business head, banking, alternate products, and product strategy, added, "Midcap coupled with momentum as a filter has shown remarkable results. He said the fund would look at the last six to 12-month price performance for volatility and free float to determine momentum.
What Is Momentum Investing?
Momentum is a rule-based investing system that buys and sells based on past returns in a defined period. Stocks that performed relatively poorly in a specified period are avoided.
Thus, it seeks to catch trends that "gather pace and solidify over time." The fund will track the performance of the top 50 companies with high momentum in the Nifty Midcap 150 Index. In addition, the stocks must have at least one year of listing history to track their six-month and one-year momentum. Also, portfolio rebalancing would be done semi-annually in June and December.
Stocks ranked between 101 and 250 based on their market cap on the National Stock Exchange (NSE) are categorized as mid-caps. According to data provided by the fund house, the Nifty Midcap 150 Momentum 50 TRI returned 20 per cent annually compared to 14 per cent of Nifty Midcap 150 TRI in the last 15 years. In the last three years, the former returned 38 per cent and the latter 29 per cent.
The top seven sectors with the highest exposure in the Nifty Midcap 150 Momentum 50 Index include capital goods, consumer services, chemicals, information technology, power, realty, and textiles.
