NFO Insight: Can the NJ Momentum Fund help investors capture market momentum?

NJ Mutual Fund has launched the NJ Momentum Fund, with the new fund offer (NFO) open for subscription until July 24.

The scheme aims to generate long-term capital appreciation by predominantly investing in equity and equity-related instruments of companies exhibiting strong price momentum.

Investment process

According to NJ Mutual Fund, the investment process of this momentum fund is a three step process. Firstly, the stocks are selected using a predefined rules-based framework without subjective intervention or discretionary decision-making. Secondly, the baseline quality filters are applied to eliminate weaker businesses and improve the overall quality profile of the portfolio.


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Finally, the investment universe is screened using predefined momentum parameters to identify stocks exhibiting strong and persistent market trends.

NJ Momentum Fund filters out low-quality stocks and then selects good-quality high-momentum stocks, according to NJ Mutual Fund.

What experts say on momentum investing

Experts typically advise investors to avoid investing in NFOs unless they offer something genuinely unique. This could be a strategy or investment opportunity that is not already available in the market, or a distinct feature that sets it apart from existing offerings. Otherwise, experts believe investors are better off choosing an existing scheme with a proven track record, as its historical performance provides a basis for making an informed investment decision. In contrast, NFOs have no performance history to evaluate.

Shivam Pathak, CFP and Founder of Asset Elixir told ETMutualFunds that the fund follows a rules-based investment approach that identifies companies exhibiting strong momentum characteristics, and the model considers price trends along with market, macroeconomic and fundamental factors rather than relying solely on discretionary stock selection.

Another expert, Rajani Tandale, SVP - Mutual Fund and Partner at 1 Finance, shared with ETMutualFunds that a standard index calculation evaluates a stock's 6-month and 12-month price returns, dividing them by the annualised volatility of daily returns over that same period to systematically penalise highly erratic stocks.

She further said that after ranking eligible companies by their momentum scores, final stock weights are determined by multiplying each company's free-float market capitalisation and, in contrast, the NJ Fund employs a 'rule-based active investing' framework, as this proprietary methodology screens the universe by combining quality, value, low volatility, and momentum factors to dynamically select and weight its portfolio.

According to the scheme information document (SID) of the fund, given that the scheme follows a rule-based momentum strategy, the fund manager is required to rebalance the portfolio based on the outcome of the model, potentially leading to higher churn. The portfolio is reviewed on a regular basis, and changes are made based on definite signals indicated by the proprietary model.

The scheme selects securities using a rule-based active approach based on proprietary protocols. These protocols are derived based on analysis of various market, macroeconomic and fundamental factors described below. Based on the emerging information and analysis, these protocols/rules may change from time to time.

The strategy is rooted in Factor-based investing, an investment approach that targets specific characteristics—such as quality, value, low volatility, or momentum—that have been identified through empirical research to drive long-term risk and return.

Portfolio rebalancing and its impact on returns

According to ETWealth, as of June 30, 2026, in the last 10 years, momentum has been the second-best performer after alpha factor investing, highlighting how investing in stocks with strong price trends has created substantial wealth over time. It delivered a return of 16.7% in the last 10 years.

In the current calendar year so far, the momentum based investing has lost 1.3%. Since calendar year 2017, momentum investing has delivered returns ranging between negative of 7.5% to 52.9%.

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Tandale said the fund rebalances on a monthly schedule using an active quantitative model. Additionally, it can trigger off-cycle defensive rebalancing within 30 days during extreme market events to aggressively protect capital.

Shivam Pathak said that momentum strategies require regular rebalancing to capture changing market leadership. While this can lead to higher portfolio turnover, it also helps the fund adapt quickly to evolving market trends and avoid weakening momentum.

Why invest in this momentum fund?

According to the fund house, one must invest in this fund as it focuses on identifying stocks exhibiting strong and sustained price trends through a systematic momentum investing strategy by aiming to participate in emerging market opportunities.

Secondly, momentum helps identify stocks showing strong price trends, while a quality filter helps avoid weaker businesses by focusing on companies with sound financials, strong fundamentals, and sustainable business characteristics. Next, a disciplined, data-driven and true-to-label rule-based investment framework that helps reduce emotional decision-making and maintain consistency across market cycles.

Lastly, it combines momentum factor investing with quality screening to create a differentiated portfolio that follows a structured and systematic investment process.

How momentum funds fit into a diversified portfolio

Shivam Pathak said momentum funds should be used as a satellite allocation alongside core holdings such as flexi-cap, large & mid-cap, or index funds. According to him, they provide exposure to a distinct investment factor and can enhance portfolio diversification across different market cycles.

Rajani Tandale said momentum acts as a high-speed engine, capturing rapid market trends that traditional flexi-cap or large-cap funds may miss. However, she cautioned that factor-based funds should not form the core of a portfolio because of their cyclical nature, noting that momentum strategies tend to underperform during economic slowdowns or range-bound markets.

Comparing the NJ Momentum Fund with a standard index fund, Tandale said index funds offer a proven track record and lower costs, but their semi-annual rebalancing can make them slower to exit sectors in decline. In contrast, while the NJ Momentum Fund has no historical performance record and carries higher costs, its dynamic investment model is designed to respond more quickly to changing market conditions and downturns.

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Suitability and allocation

NJ Mutual Fund said that this momentum fund is suitable for investors who prefer a disciplined and structured investment process that follows predefined models and objective stock selection instead of emotional or noise-driven investing.

The scheme is suitable for investors seeking exposure to companies demonstrating strong price momentum through a systematic factor-based investing strategy. It is also aimed at those looking for momentum opportunities backed by quality filters that focus on fundamentally strong businesses, investors seeking to build long-term wealth through a factor-based equity approach, and those who understand that momentum investing can be volatile in the short term and are willing to stay invested through periods of underperformance.

Other momentum-based investing funds

Around 36 funds are available based on momentum investing, including active and passive funds, which lost up to 7.73% and gained upto 18.91% in the last one year. Around 12 funds completed three years, which delivered returns ranging from 11.19% to 17.97% in the last three years.

Tandale said that a factor-based strategy should strictly serve as a satellite holding capped at 10% to 15% of your total equity portfolio. I think one should skip the NFO. If you want a 10% momentum tilt, choose a proven, low-cost passive index option.

Pathak said that given the higher volatility associated with momentum investing, investors may consider limiting exposure to around 5-10% of their equity portfolio and the long-term outlook remains positive, but investors should be prepared for periods of sharp underperformance when market trends reverse.

On July 10, the fund house launched NJ Value Fund as well. The investment objective of the Scheme is to generate long term capital appreciation by investing predominantly in equity and equity related instruments of companies by following a value investment strategy.

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Time to pick value investing?

Pathak said that one should decide based on the launch date. Momentum and value are different styles that suit different market conditions. Choose based on what your portfolio is missing - or consider putting small amounts into both over time, rather than rushing into either.

Tandale said that value and momentum are polar opposites conceptually. Launching both the NJ Value Fund NFO and the NJ Momentum Fund NFO simultaneously, seems contradictory, one should avoid NFOs totally.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)

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