Bandhan Nifty 500 Momentum 50 Index Fund: Capitalize on market trend

Bandhan MF has launched a new passive fund, the Bandhan Nifty 500 Momentum 50 Index Fund. As the scheme name suggests, the fund will track the Nifty 500 Momentum 50 Index. Funds tracking factor indices, also known as smart beta funds, are increasingly becoming popular with investors since these funds have the potential of outperforming the broad market indices e.g. Nifty, Sensex etc. The NFO has opened for subscription on 14^th October and will close on 24^th October. In this article we will review Bandhan Nifty 500 Momentum 50 Index Fund NFO.

What are factor indices?

Factor indices are constructed based on quantitative, rule-based investment strategies based on specific characteristics that have historically driven a portfolio's returns and risk. Factor indices select stocks from the constituents of a certain benchmark index like Nifty 50, Nifty 100, Nifty 500, etc based on different factors like Momentum, Volatility, Beta, Alpha, Dividend Yield, Value, and Quality, etc. The core idea behind factor investing is to know which specific factors, beyond the overall market make some investments do better or worse.

How do factors drive investment returns?

Factor-based index funds are relatively new in India, but active fund managers have been utilizing these factors in their strategies for many years. The infographic illustrates the evolution of portfolio return attribution from the 1960s to the 2000s and emphasizes the growing recognition that specific factors significantly influence investment performance.

Source: Bandhan MF

What is momentum?

Momentum, in the context of equity markets, refers to the tendency of stock price trends to persist. In very simple terms it means that prices follow a trend - if stock prices are rising, it may rise further and if stock prices are falling, it may fall further. Investors are generally drawn to stocks experiencing an upward trajectory thus creating the potential of “buying high and selling higher” instead of the traditional “buy low and sell high” to generate higher returns.

How momentum investing works?

• The momentum strategy invests in stocks that are outperforming and reduces exposure to stocks that are underperforming.


• It is based on the premise that stocks that have performed well in the recent past are likely to continue doing so.


• The strategy picks a stock after it has moved and proven its strength.


• The strategy exits a stock not at the peak but once it identifies that the trend is continuing downward.


• Instead of predicting peaks or bottoms, the focus is on identifying and capitalizing on the market’s prevailing direction or trend.

Momentum investing has outperformed the broad market

The chart below shows the growth of Rs 10,000 investment in Nifty 500 Momentum 50 TRI and Nifty 50 TRI over the last 10 years. You can see that the momentum index had outperformed the broad market.

Source: National Stock Exchange, as on 30^th September 2024

How is Nifty 500 Momentum 50 Index constructed?

Top 50 companies with highest Momentum score based on 6 & 12-month price return adjusted for volatility. Index constituents have tilt-based weights (Free Float Market Cap x Normalized Momentum score). Normalized momentum score is calculated using price returns and standard deviation at a stock level and also on an aggregate basis (i.e. Nifty 500 universe). The index is rebalanced semi annually in June and December.

How has Nifty 500 Momentum 50 Index performed versus broad market indices across different market conditions?

The Nifty 500 Momentum 50 TRI has outperformed broader market indices across various tenures.

Source: NSE, Bandhan MF, as on 31^st August 2024

Sector Rotation

The table below shows the sector composition of the Nifty 500 Momentum 50 Index in different semi-annual periods over the past 5 years. You can see that allocation to financial services ranged from 4.9% to 43.7%. Similarly, allocation to IT ranged from 0 to 40.8%, while healthcare ranged from 0 to 39.3%. We can summarize that the momentum strategy effectively captures sector rotation by rebalancing semi-annually in June and December.

Source: NSE, Bandhan MF, as on 30^th June 2024

Momentum in market cap segments

The table below shows the market cap allocations of Nifty 500 Momentum 50 Index in different semi-annual periods over the past 5 years. Large cap allocation ranged from 27.3% to 75%, midcap from 21.8% to 42.7% and small cap from 4.1% to 36%. Nifty 500 Momentum 50 Index effectively captures the momentum in the market capitalization also.

Source: NSE, Bandhan MF, as on 30^th June 2024

Who should invest in Bandhan Nifty 500 Momentum 50 Index Fund?

• Investors with a high-risk appetite


• Investors having a long-term investment horizon (minimum 5 years)


• Investors seeking to add aggressive strategy to their portfolio

Investors should consult their financial advisors or mutual fund distributors if Bandhan Nifty 500 Momentum 50 Index Fund is suitable for your investments.

Disclaimer:

MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY.

The Disclosures of opinions/in house views/strategy incorporated herein is provided solely to enhance the transparency about the investment strategy / theme of the Scheme and should not be treated as endorsement of the views / opinions or as an investment advice. This document should not be construed as a research report or a recommendation to buy or sell any security. This document has been prepared on the basis of information, which is already available in publicly accessible media or developed through analysis of Bandhan Mutual Fund (formerly known as IDFC Mutual Fund). The information/ views / opinions provided is for informative purpose only and may have ceased to be current by the time it may reach the recipient, which should be taken into account before interpreting this document. The recipient should note and understand that the information provided above may not contain all the material aspects relevant for making an investment decision and the security may or may not continue to form part of the scheme’s portfolio in future. Investors are advised to consult their own investment advisor before making any investment decision in light of their risk appetite, investment goals and horizon. The decision of the Investment Manager may not always be profitable; as such decisions are based on the prevailing market conditions and the understanding of the Investment Manager. Actual market movements may vary from the anticipated trends. This information is subject to change without any prior notice. The Company reserves the right to make modifications and alterations to this statement as may be required from time to time. Neither Bandhan Mutual Fund (formerly known as IDFC Mutual Fund)/ Bandhan Mutual Fund Trustee Limited (formerly IDFC AMC Trustee Company Limited) / Bandhan AMC Limited (formerly IDFC Asset Management Company Limited), its Directors or representatives shall be liable for any damages whether direct or indirect, incidental, punitive special or consequential including lost revenue or lost profits that may arise from or in connection with the use of the information.