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Returns on equity investing depend on various macro and other factors. As far as macro factors are concerned reasons like existing and potentials of economic growth of the economy, inflation levels and prevailing interest rate impact the returns. The other factors include micro related with the specific company like price momentum of stock prices, growth and value prepositions of the company.

What is momentum investing? 

Under the momentum investing the decisions based on strategy to reap benefits of existing price trend. The decisions are changed based on change in the technical indicators of the price movement of the shares of the company. The objective of momentum investing is to take the benefits of volatility in the stock prices in short term. It is like riding on the waves in the ocean where a momentum investor is sailing up the crest of one, only to jump to the next wave before the first wave crashes down again.

How Nifty 200 momentum 30 Index works?

National Stock Exchange of India (NSE) constructs various indices of equity and debt. It has various indices representing various market segments like NIFTY 50, NIFTY 100, , NIFTY 200, NIFTY 150 Midcap, NIFTY 2500 Small cap and several other indices representing investing style/philosophies like Nifty Alpha low volatility 30, Nifty 200 Momentum 30 Index etc.

The Nifty 200 momentum 30 Index is constructed out of top 200 companies listed on NSE. The companies comprised in this index are selected on criteria like minimum of one year of listing history, availability of the stock in the Future and Option segment to ensure adequate liquidity of the stock. The weight of each company is restricted to 5% in the index to avoid the risk of concentration. In order to determine the main criteria of the stock qualifying as momentum stock, normalized momentum score of all 200 companies comprised in NSE 200 in computed and arranged in descending order. The first 30 such companies satisfying the other criteria are included in this index.  In order to keep the index relevant, a review is carried out every six months in June and December every year and rebalancing is done.

Past performance of the Index

The past performance of companies comprised in this index has been strong as is evident from the following numbers.

The NSE 200 momentum 30 index has dividend yield of 2% against 1.50% and 1.40% for Nifty 50 and Nifty 200 respectively as of 30th June 2022. It also has lower PE ratio of 19.2 against 19.7 of NSE 200 index. It has better price to book value ratio of 3.7 against 4 of Nifty 50 index on 30th June 2022.

One lakh rupees invested in the index in June 2005 would have grown to 20.51 lakh on 30th June 2022. It would have grown to 9.46 lakh and 9.77 lakh respectively in Nifty 50 and Nifty 200 during the same period.

Moreover  this index has given an annualized return of 19.88%  for the past ten year period ending on 30th June whereas Nifty 50 and Nifty 200 have given annualized 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 invest individually in all the companies comprised in the index and carry out the rebalancing precisely as he lacks expertise and time required to do so. So how to go about it? It 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.

Presently a few mutual fund houses offer you index fund/ETF imitating the 200 Nifty momentum 30 Index.  UTI Nifty 200 Momentum 30 Index Fund, Motilal Oswal 200 Momentum 30 Index Fund/ETF are existing funds/ETF are available replicating this Index.

An NFO of Nifty 200 momentum 30 Index Fund and Nifty 200 momentum 30 ETF from ICICI Mutual Fund has opened on 22th June, 2022 and is open till 2nd August 2022.

Taxation of Nifty 200 momentum 30 Index fund and of Nifty 200 momentum 30 ETFs

Since these funds/ ETF qualify as equity oriented schemes, your investment becomes long term if held for 12 months or more and get taxed at flat rate of 10% after initial one lakhs of long term capital gains for all listed shares and equity schemes taken together. If sold before completion of 12 months, the profits get taxed at flat rate of 15%.

So I feel if you are long term investors, investing in this index through mutual fund schemes can help you better returns in the long run.

Balwant Jain is a tax and investment expert and can be reached on jainbalwant@gmail.com and @jainbalwant on Twitter

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