Momentum funds can be fast & furious. How much to invest?

Summary: This story breaks down how momentum funds really work, how they’ve performed, and most importantly — how much of your portfolio you should actually allocate to them. Think of this as your smart investor’s guide to chasing performance… without getting burned. So, let's get started! Momentum was the poster child of 2023. A portfolio packed with rising stocks was the fastest way to outperform the market, and some investors couldn’t get enough of it. The fact that momentum funds’ net assets grew over 300 per cent in the past four years speaks volumes about the fanaticism. The enthusiasm was not unfounded, either. Momentum funds gave a return of 42 per cent in 2023 and 23 per cent in 2024, while the average flexi-cap fund only gave 29 and 21 per cent, respectively. So, it's no wonder that momentum became the flavour of the bull run. But then came the correction. Momentum funds, once strutting at the top of performance tables, have tumbled to the bottom decile on one-year returns. Investors who bought into the hype are now facing drawdowns they didn’t sign up for. The same speed that made them rich on paper is now turning into a hazard. What is momentum? Momentum investing is about backing the winners. It chooses stocks that have been rising recently. For instance, the Nifty 500 Momentum 50 Index simply picks the 50 fastest-moving stocks from the Nifty 500, based on their recent price performance. It also gives more weight to stocks that are both strong performers and reasonably large in size. In