Fund Radar: Momentum funds: Crazy highs to crippling lows

Up until September 2024, momentum funds were all the rage. Fund houses were launching these funds in droves. Their six-month and one-year performances were solid, too. But after September 2024, as the market tumbled over 10 per cent, they too dropped a stink bomb on investors, highlighting the challenges of momentum strategies during turbulent times. Before we look at the mercurial nature of momentum funds, let's understand what they are. What are momentum funds? These funds select stocks with strong price performance, based on the belief that such stocks will continue to do well. There are 28 momentum funds in total - 24 passive and four active. Most of them were launched within the last year, with the oldest being just three years and eight months old. As of December 31, 2024, the total AUM (assets under management) of momentum funds stood at Rs 20,495 crore, with 77 per cent of it in passive funds. What are momentum funds' benchmarks? Momentum funds have different benchmarks, each tied to a specific parent index. For example, the UTI Nifty