Return on equity investment depends on various macro and other factors. As far as macro factors are concerned the current and economic growth prospects of the economy, inflation levels and prevailing interest rates affect returns. Other factors include subtleties related to the specific company such as the price movement of stock prices, company growth and price preponderance.
What is momentum investing?
Strategy based decision making to take advantage of the current price trend under momentum. Decisions are changed based on changes in technical indicators of the price movement of the company’s shares. Momentum investing aims to take advantage of stock price volatility in the short term. It’s like riding the waves in the ocean where a speed investor is sailing to the summit of one, only to jump onto the next wave before the first wave crashes again.
How Nifty 200 Momentum 30 Index Works?
National Stock Exchange of India (NSE) forms various indices of equity and debt. It has various indices representing Nifty 50, Nifty 100, Nifty 200, Nifty 150 Midcap, Nifty 2500 Small Cap and many other indices representing investment style/philosophy like Nifty Alpha Low Volatility 30, Nifty 200 Momentum 30 Index etc. .
The Nifty 200 Momentum 30 Index is made out of the top 200 companies listed on NSE. The companies included in this index are selected on criteria like listing history of minimum one year, availability of stock in futures and options segment to ensure adequate liquidity of the stock. The weighting of each company is limited to 5% in the index to avoid the risk of concentration. In order to determine the key criteria for a stock that qualifies as a momentum stock, the normalized momentum scores of all the 200 companies included in the NSE 200 were calculated and arranged in descending order. The first 30 such companies to meet other criteria are included in this index. The index is reviewed and rebalanced every six months in June and December every year to keep it relevant.
past performance of the index
The companies included in this index have had a strong past performance as is evident from the following numbers.
The NSE 200 Momentum 30 index has a dividend yield of 2% as against 1.50% and 1.40% for Nifty 50 and Nifty 200 respectively. It also has a lower PE ratio of 19.2 as compared to 19.7 of the NSE 200 index. The book value ratio of 3.7 is better as compared to 4 of the Nifty 50 index as on 30 June 2022.
One lakh rupees invested in the index in June 2005 would have increased to 20.51 lakh on 30 June 2022. During the same period it would have increased to 9.46 lakhs and 9.77 lakhs in Nifty 50 and Nifty 200 respectively.
Further, the index has given an annualized return of 19.88 per cent for the last ten years ended June 30 while Nifty 50 and Nifty 200 have given annual returns of 12.94% and 13.44% during the same period.
How Can You Invest In Momentum Companies With Convenience?
Since an average investor cannot individually invest in all the companies included in the index and rebalance properly he lacks the expertise and time required to do so. So how to go about it? This is simple. One can invest in this index through index funds and ETFs (Exchange Traded Funds) offered by mutual funds and which mimic the parent index from time to time.
Currently some mutual fund houses offer you Index Funds/ETFs mimicking the 200 Nifty Momentum 30 Index. UTI Nifty 200 Momentum 30 Index Fund, Motilal Oswal 200 Momentum 30 Index Fund/ETF are existing funds/ETFs available replicating this index.
An NFO of Nifty 200 Momentum 30 Index Fund and Nifty 200 Momentum 30 ETF from ICICI Mutual Fund is open on June 22, 2022 and is open till August 2, 2022.
Taxation of Nifty 200 Momentum 30 Index Fund and Nifty 200 Momentum 30 ETF
Since these funds/ETFs qualify as equity oriented schemes, if your investment is held for 12 months or more then your investment becomes long term and initial one lakh for all listed stocks and equity schemes becomes long term. Capital gains are then taxed at a flat rate of 10%. , If sold before the completion of 12 months, the gain is taxed at the same rate of 15%.
So I think if you are a long term investor, then investing in this index through mutual fund schemes can give you better returns in the long run.
Balwant Jain is a tax and investment specialist and can be contacted on Twitter at jainbalwant@gmail.com and @jainbalwant.
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