5 Hidden Mutual Funds to Build MASSIVE Wealth | Udayan Adhye

Summary

In this video, the host introduces factor investing, a powerful yet relatively unknown strategy in India, as the second most popular method globally. The host explains five key factor categories: momentum investing, exemplified by the Nifty 200 Momentum 30 Index, which focuses on stock price trends; midcap momentum with the Nifty Midcap 150 Momentum 50 Index; the Nifty Alpha 50, selecting high-performing stocks; the Nifty Top 10 Equal Weight Index, balancing the largest stocks; and the Nifty 500 Value 50 Index, emphasizing company fundamentals. The video compares these strategies' historical performance to traditional indices like the Nifty 50, highlighting their potential to significantly enhance portfolio returns.

Takeaways

• 🌟 Factor investing is the second most popular investment strategy globally, yet it's relatively unknown in India.
• 📈 Momentum investing focuses on stocks that have been increasing in price, expecting the upward trend to continue.
• 💹 The Nifty 200 Momentum 30 Index, composed of high-momentum stocks from India's largest 200 stocks, has shown significant returns.
• 🚀 The past one-year returns of the Nifty 200 Momentum 30 Index have been over 60%, outperforming the Nifty 50.
• 📊 The 5-year median rolling returns of the Nifty 200 Momentum 30 Index are notably higher than those of the Nifty 50.
• 🔄 The Nifty Midcap 150 Momentum 50 Index selects high-momentum stocks from midcaps, showing impressive one-year returns of 70.75%.
• 📊 The Nifty Alpha 50 Index selects stocks based on their outperformance (Alpha) against the index, with a one-year return of 77.95%.
• 🔢 The Nifty Top 10 Equal Weight Index provides equal weight to the 10 largest stocks in the Nifty 50, offering stability with returns of 20.32% in the past year.
• 💰 The Nifty 500 Value 50 Index follows a value investing approach, selecting undervalued stocks with strong fundamentals, and has delivered a one-year return of 86.2%.
• 📉 During market downturns, like the COVID crash, momentum and value indices have shown resilience, outperforming broader market indices.

Q & A

What is factor investing and why is it significant?

Factor investing is a strategy that focuses on specific investment factors that are believed to influence the returns of a portfolio. It's significant because it can potentially boost the returns of your portfolio and is the second most popular method of investing worldwide, just behind index funds.

What are the five categories of factor investing mentioned in the script?

The five categories of factor investing mentioned are: 1) Momentum investing, 2) Midcap momentum investing, 3) Alpha investing, 4) Top 10 equal weight investing, and 5) Value investing.

How does the Nifty 200 Momentum 30 Index select its stocks?

The Nifty 200 Momentum 30 Index selects its stocks from the largest 200 stocks in India based on their momentum. The 30 stocks with the strongest momentum are chosen using a normalized momentum score, which considers the stocks' 6-month and 12-month price returns adjusted for volatility.

What is the difference between the Nifty 200 Momentum 30 Index and the Nifty 50 Index in terms of returns?

The Nifty 200 Momentum 30 Index has historically provided higher returns than the Nifty 50 Index. For instance, a SIP investment in the momentum index would have grown more significantly compared to the same investment in the Nifty 50 Index.

How does the Nifty Midcap 150 Momentum 50 Index differ from the regular Nifty Midcap 150 Index?

The Nifty Midcap 150 Momentum 50 Index focuses on selecting the 50 stocks with the highest momentum from a pool of 150 midcap stocks, whereas the regular Nifty Midcap 150 Index comprises the 150 largest midcap stocks. The momentum index has shown to outperform the regular midcap index in terms of returns.

What is unique about the Nifty Alpha 50 Index's stock selection process?

The Nifty Alpha 50 Index selects 50 stocks from the 300 largest stocks in India based on their alpha, which is the difference between a stock's performance and its comparable index. Stocks with the highest alpha are given the largest weightage in the index.

Why might an investor consider the Nifty Top 10 Equal Weight Index?

An investor might consider the Nifty Top 10 Equal Weight Index because it assigns an equal allocation to each of the 10 largest stocks within the Nifty 50 index, which can potentially offer higher returns with lower volatility compared to the Nifty 50 Index itself.

How does the Nifty 500 Value 50 Index select its stocks and what is its performance compared to the Nifty 500 Index?

The Nifty 500 Value 50 Index selects its 50 stocks from a universe of 500 stocks based on a value score that considers earnings to price ratio, book value to price ratio, sales to price ratio, and dividend yield. Its performance has been higher than the Nifty 500 Index on a 5-year rolling basis, but it comes with a higher standard deviation, indicating greater volatility.

What are the risks associated with the Nifty Alpha 50 Index?

The Nifty Alpha 50 Index comes with higher risks due to its higher volatility. Since the stocks are selected based on their performance relative to the index, the index can be more susceptible to market fluctuations.

Why might an investor prefer actively managed funds over index funds for value investing in India?

An investor might prefer actively managed funds over index funds for value investing because active funds can potentially provide better returns by taking advantage of market inefficiencies and the fund manager's expertise, which can be particularly beneficial in a market like India where value investing can be more complex.