Nippon India Active Momentum Fund NFO: A Factor-Based Approach to Investing

Nippon India Mutual Fund has announced the launch of its latest New Fund Offer (NFO)—Nippon India Active Momentum Fund. This open-ended equity scheme is designed to generate long-term capital appreciation by investing in a diversified portfolio of equity and equity-related instruments, primarily focusing on momentum investing. The fund will be available for subscription between 10 and 24 February.

Momentum investing is a well-known factor-based investment strategy that relies on stocks demonstrating sustained price trends over time. This approach is based on the premise that assets that have performed well in the past may continue to do so, while those that have underperformed may continue to lag.

Understanding Factor-Based Investing

Factor investing is a rules-based investment approach that aims to eliminate emotional decision-making and human biases. It relies on fundamental attributes such as:

• Alpha (excess returns above benchmarks)
• Low volatility (stable performance with reduced fluctuations)
• Quality (strong financials and robust business fundamentals)
• Value (undervalued stocks with potential for growth)
• Growth (companies with strong earnings momentum)

Momentum is one such factor, and the Nippon India Active Momentum Fund builds its strategy around this principle.

Momentum Investing: A Proven Concept

Historical data indicates that momentum-based indices have delivered consistent returns. For instance, in a typical year, momentum as an index delivers top returns approximately 8 times on a cumulative basis. Additionally, the Nifty 500 Momentum 50 Index has outperformed the Nifty 500 in 13 out of the last 19 years.

However, momentum investing can be highly volatile, particularly during market downturns. Instances such as the early pandemic phase and the global financial crisis have shown that momentum-based portfolios can suffer sharp underperformance at decisive turning points.

How the Fund Aims to Reduce Risk

To mitigate the risks associated with momentum investing, the Nippon India Active Momentum Fund incorporates a multi-factor quantitative model that blends:

1. Technical factors – Price momentum to identify stocks that continue to perform.
2. Fundamental factors – Earnings revision to assess a company’s growth trajectory.
3. Conditional indicators – Beta (to benefit from market uptrends) and minimum volatility (to reduce risk during downturns).

The fund’s strategy adapts to market phases, commonly referred to as “Risk ON” and “Risk OFF” periods:

• During Risk ON phases, the fund enhances upside potential by adding the Beta factor to momentum.
• During Risk OFF phases, minimum volatility helps stabilise the portfolio and mitigate drawdowns.

Additionally, the portfolio will undergo monthly rebalancing to dynamically adjust to market conditions.

Key Features of Nippon India Active Momentum Fund

• Fund Category: Open-ended equity scheme
• Investment Strategy: Momentum-based investing with a blend of technical and fundamental factors
• Benchmark Index: Nifty 500 TRI
• Minimum Investment: ₹500 (and in multiples of ₹1 thereafter)
• Subscription Period: 10 – 24 February
• Portfolio Rebalancing: Monthly

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Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions. 

Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.