UTI Nifty200 Momentum 30 Index Fund Who should invest?

Summary

The video discusses the UTI Nifty 200 Momentum 30 Index Fund, an open-ended index fund tracking the NSE's momentum index. This index selects 30 stocks from the Nifty 200 based on their momentum over six and twelve months. The speaker outlines the pros and cons of momentum investing, noting that while it may reduce tax burdens for DIY investors, it also comes with risks, such as higher volatility and inconsistent outperformance. The speaker warns that momentum funds may underperform in range-bound markets or during recovery periods, urging caution before investing.

Takeaways

• 📊 The UTI Nifty 200 Momentum 30 Index Fund is an open-ended index fund tracking 30 high-momentum stocks from the Nifty 200.
• 📈 Momentum investing selects stocks that have performed well over the past 6-12 months, assuming the trend will continue.
• 🛠️ The index selects stocks using a momentum score based on 6-month and 12-month returns, adjusted for volatility.
• 💼 Investing in this fund can help reduce tax incidence from frequent stock changes compared to DIY portfolios or using brokers like Smallcase.
• ⚖️ The fund's potential risks include high volatility and periods of underperformance, especially in range-bound or post-crash markets.
• ⚠️ The expense ratio for this fund is 0.5%, which is significantly higher than that of a standard Nifty index fund (0.1%).
• 📉 There are instances where the Momentum Index has failed to outperform the Nifty 50, especially after crashes or during market rebounds.
• ⏳ Investors should be prepared for long periods of underperformance; the main outperformance period was between 2012 and 2018.
• 🧐 The presenter suggests that if you're already investing in Nifty or Nifty Next 50, you may not need this additional momentum fund.
• 💡 Momentum investing is not a guaranteed benefit like low-volatility investing, which offers lower volatility at market returns.

Q & A

What is the UTI Nifty 200 Momentum 30 Index Fund?

The UTI Nifty 200 Momentum 30 Index Fund is an open-ended index fund that tracks the momentum index from the NSE, composed of 30 stocks with high momentum selected from the Nifty 200.

How are the stocks in the Nifty 200 Momentum 30 Index selected?

Stocks are selected based on a momentum score, which is a combination of 6-month and 12-month momentum. The momentum score is calculated by dividing the respective returns by the standard deviation of daily returns for the same period, and the top 30 stocks with the highest scores are chosen.

What are the main advantages of investing in the UTI Nifty 200 Momentum 30 Index Fund?

The main advantage is that it avoids the tax burden that comes with frequently trading momentum stocks. Investors can benefit from momentum investing without incurring individual taxes from stock churns, unlike DIY momentum portfolios or broker-arranged baskets like Smallcase.

What are the key risks associated with momentum investing in this fund?

The key risks include the potential underperformance of the momentum index compared to the broader Nifty or Nifty Next 50 during certain market conditions, particularly after market crashes or in range-bound markets. Additionally, momentum stocks can lose momentum quickly, leading to higher volatility.

How does the expense ratio of this fund compare to other index funds?

The expense ratio for the UTI Nifty 200 Momentum 30 Index Fund is around 0.5%, which is five times more expensive than a regular Nifty index fund, which typically has an expense ratio of around 0.1%.

Why might the UTI Nifty 200 Momentum 30 Index Fund have higher tracking errors?

The fund includes mid-cap stocks from the Nifty Next 50 and Nifty Midcap 150, which can lead to higher tracking errors compared to a pure large-cap index.

What does the script suggest about the fund's ability to outperform the Nifty 50 and Nifty Next 50?

The script suggests that the UTI Nifty 200 Momentum 30 Index Fund may struggle to consistently outperform the Nifty 50 and Nifty Next 50, especially during market recoveries and range-bound periods. Historical data shows that it has underperformed during certain periods, particularly after market crashes.

What period did the UTI Nifty 200 Momentum 30 Index show significant outperformance?

The index showed significant outperformance from January 2012 to January 2018. Outside of this period, its performance was not as strong compared to the Nifty 50 and Nifty Next 50.

What are the alternatives for investors already invested in Nifty or Nifty Next 50?

Investors already invested in Nifty or Nifty Next 50 funds do not need to add this momentum index fund, as they are already exposed to market momentum through those funds. Adding the momentum fund could lead to portfolio clutter and may not provide significant additional benefits.

How does low volatility stock investing compare to momentum investing?

Low volatility stock investing guarantees lower volatility, even if the returns are similar to the market. In contrast, momentum investing does not provide any guaranteed benefits and can result in more volatile performance, making it riskier.