September 24, 2025 - Updated on March 16, 2026
Momentum investing is an investment strategy that focuses on buying assets showing strong upward price trends. It is based on the idea that securities performing well in the market are likely to continue that performance in the near term. Investors following this approach rely on market trends, price movements, and investor sentiment rather than long-term fundamentals. Momentum investing requires timely decision-making and regular portfolio monitoring, which can be easily tracked using platforms like the Mutual Fund Wala app. When used correctly, it can help investors capture gains during favorable market phases.
Benefits of Momentum Investing
- Potential for High Returns: Momentum investing has historically outperformed the market. By capitalizing on existing trends, investors can ride the wave of upward momentum, potentially achieving higher returns than those who follow a more passive investment strategy.
- Behavioural Finance Justification: Momentum investing leverages the behavioural biases of investors. Herding behaviour and the tendency of investors to follow the crowd can create trends that momentum investors can exploit. Additionally, the disposition effect, where investors hold onto losers too long and sell winners too quickly, can also contribute to momentum.
- Systematic Approach: Momentum investing can be systematized and implemented using quantitative models. This allows for a more disciplined approach, removing emotional biases from investment decisions. Such systematic strategies can be backtested, giving investors confidence in their methods based on historical data.
- Diversification: Momentum strategies can be applied across different asset classes, including stocks, commodities, and currencies. This diversification can reduce risk while maintaining the potential for high returns
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Drawbacks of Momentum Investing
- Risk of Reversals: Momentum investing is inherently risky because trends can reverse abruptly. Events such as earnings announcements, geopolitical developments, or market corrections can cause rapid changes in price direction, leading to significant losses for momentum investors.
- Market Timing: Successfully implementing a momentum strategy requires precise timing. Getting in too late or exiting too early can erode profits. Timing the market consistently is challenging, even for experienced investors.
- Transaction Costs: High turnover is a hallmark of momentum investing, as it involves frequent buying and selling to capture the trend. This can lead to substantial transaction costs, including commissions, bid-ask spreads, and taxes, which can eat into profits.
- Overfitting in Quantitative Models: There is a risk that the quantitative models used to identify momentum might be overfitted to historical data. This means that the model might perform well on past data but fail to predict future performance accurately.
- Market Efficiency: Critics argue that momentum investing contradicts the efficient market hypothesis (EMH), which states that all known information is already reflected in stock prices. If markets are efficient, consistent excess returns from momentum investing should not be possible. As markets evolve and more investors adopt momentum strategies, the opportunities for excess returns may diminish.
Also Read: What is Portfolio Rebalancing? Why do you need it?
Some Momentum Funds Performance
ICICI Prudential Nifty 200 Momentum 30 Index Fund – Regular Plan (G)
RETURNS (NAV as on 19th June, 2024)
| Period Invested for | ₹10000 Invested on | Latest Value | Returns |
| 1 Week | 12-Jun-24 | 10067.90 | 0.68% |
| 1 Month | 17-May-24 | 10626.70 | 6.27% |
| 3 Month | 19-Mar-24 | 12239.40 | 22.39% |
| 6 Month | 19-Dec-23 | 13031.50 | 30.31% |
| YTD | 01-Jan-24 | 13013.80 | 30.14% |
| 1 Year | 19-Jun-23 | 16713.30 | 67.13% |
Tata Nifty Midcap 150 Momentum 50 Index Fund – Regular Plan (G)
(as on 19th June, 2024)
| Period Invested for | ₹10000 Invested on | Latest Value | Absolute Returns |
| 1 Week | 12-Jun-24 | 10108.70 | 1.09% |
| 1 Month | 17-May-24 | 10551.20 | 5.51% |
| 3 Month | 19-Mar-24 | 12447.00 | 24.47% |
| 6 Month | 19-Dec-23 | 12736.00 | 27.36% |
| YTD | 01-Jan-24 | 12778.00 | 27.78% |
| 1 Year | 19-Jun-23 | 17182.10 | 71.82% |
UTI Nifty 200 Momentum 30 Index Fund – Regular Plan (G)
(as on 19th June, 2024)
| Period Invested for | ₹10000 Invested on | Latest Value | Absolute Returns |
| 1 Week | 12-Jun-24 | 10068.20 | 0.68% |
| 1 Month | 17-May-24 | 10608.30 | 6.08% |
| 3 Month | 19-Mar-24 | 12222.40 | 22.22% |
| 6 Month | 19-Dec-23 | 13064.90 | 30.65% |
| YTD | 01-Jan-24 | 13023.10 | 30.23% |
| 1 Year | 19-Jun-23 | 16850.00 | 68.50% |
| 2 Year | 17-Jun-22 | 22161.60 | 121.62% |
| 3 Year | 18-Jun-21 | 20312.10 | 103.12% |
Conclusion
Momentum investing can be a profitable strategy when executed correctly, leveraging trends and behavioural finance insights to achieve high returns.
However, it carries significant risks, including the potential for abrupt trend reversals and high transaction costs. Investors must carefully consider these factors and possibly combine momentum investing with other strategies to mitigate risks and enhance overall portfolio performance.
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About the Author
Mr Shashi Kant Bahl
Mr. Shashi Kant Bahl is a mutual fund professional with nearly 20 years of experience in the financial services industry. Since 2005, he has helped over 10,000 investors manage their mutual fund investments and build long-term wealth. His firm currently manages assets of over ₹734 crore (AUM).
Disclaimer: Mutual fund investments are subject to market risks. Read all scheme-related documents carefully.
