Amid the growing range of investment strategies available in the Indian stock market, Active Momentum Funds are rapidly carving out a space for themselves. The basic idea behind these funds is simple. Invest in stocks that are performing well and showing strong upward momentum, in an attempt to benefit from that trend.

In practice, however, every fund follows a different strategy. Some change their portfolios rapidly, while others move more gradually; some give greater weight to large-cap stocks, while others look for opportunities in mid- and small-cap segments. As a result, even funds built around the same momentum theme can produce significantly different returns. Recent analyses have shown one-year returns for momentum funds ranging widely from around eight to 18 per cent, underlining both the potential and the risks associated with this category.

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Among the three funds currently attracting particular attention from investors are the Nippon India Active Momentum Fund, ICICI Prudential Active Momentum Fund, and Quant Momentum Fund. All three aim to achieve long-term capital appreciation through momentum-based investing, but there are clear differences in their age, fund size, portfolio composition and recent performance.

The Nippon India Active Momentum Fund is currently among the stronger performers of the three in terms of recent returns. The fund was launched in February 2025. As of July 31, its one-year return stood at 12.18 per cent for the regular plan and 13.28 per cent for the direct plan, compared with a return of 3.37 per cent for its benchmark, Nifty 500 TRI, over the same period.

The fund also showed strength in more recent trailing returns. By the middle of August, its one-year return was around 13.7 per cent for the regular plan and approximately 14.9 per cent for the direct plan. As of July 31, the fund's assets under management stood at around ₹505 crore. Nearly 96 per cent of its portfolio was invested in equities, with meaningful exposure not only to large-cap stocks but also to mid- and small-cap companies. Major holdings included companies such as ICICI Bank, HDFC Bank, Mahindra & Mahindra and Bajaj Finance.

One of the notable features of this fund is that its portfolio is not dependent on only a handful of sectors. Apart from financial services, it has exposure to services, automobiles, consumer staples and other areas. This may provide investors with some relief from excessive dependence on a single sector, although the momentum strategy can still result in rapid portfolio changes. According to Nippon India's official data, the NAV of the regular growth plan stood at ₹13.265 on August 21, while its annualised performance since launch remained ahead of its benchmark.

The ICICI Prudential Active Momentum Fund is relatively new, having been launched in July 2025. Consequently, it does not yet have a long performance history. This is an important consideration for investors, as the quality of a fund cannot be fully judged on the basis of only a few months or a single year of performance. By the middle of August, the fund's one-year trailing return was around 10.7 per cent, while its AUM had reached approximately ₹2,081 crore as of July 31.

The ICICI Prudential fund also has its largest exposure in large-cap stocks, although it maintains investments in mid- and small-cap companies as well. Stocks such as Mahindra & Mahindra, Samvardhana Motherson, Bajaj Finance, Axis Bank and Larsen & Toubro were among its major holdings. Financial services, capital goods, automobiles and services were among its key sectors. The fund experienced negative returns during the weaker market phase up to March, but its performance improved subsequently. Factsheet data for April and May showed the fund outperforming its benchmark, suggesting that an active momentum strategy may attempt to benefit from changing trends following a market decline.

The oldest of the three is the Quant Momentum Fund, which was launched in November 2023. It therefore has a relatively longer track record compared with the Nippon India and ICICI Prudential funds. On August 21, the NAV of its regular growth plan was around ₹15.31, while the direct growth plan had an NAV of approximately ₹15.85.

The performance history of the Quant Momentum Fund demonstrates that the path of momentum investing is rarely smooth. Its one-year performance remained limited until February and turned negative over the one-year period in April. However, performance improved sharply as the market recovered. According to data available by the middle of August, the fund had an AUM of approximately ₹1,356 crore, while its average annualised return since inception stood at around 16.85 per cent. These fluctuations illustrate why investors should not make decisions solely on the basis of recent strong performance.

A distinctive feature of Quant's strategy is its dynamic, quantitative model-based approach. According to the fund house, its objective is not simply to chase rising stocks but also to actively manage near- and short-term risks. During periods of weak price and earnings momentum, the fund adopted a relatively defensive stance. Later, it increased exposure to sectors such as telecom, capital goods and power, while reducing exposure to FMCG and certain other sectors.

When the three funds are compared, the Nippon India Active Momentum Fund appears the most impressive on the basis of recent performance. Its one-year and since-inception returns have been clearly ahead of its benchmark. The ICICI Prudential Active Momentum Fund has seen rapid growth in fund size and has shown signs of recovery after a difficult market phase, although its track record remains short. The Quant Momentum Fund has a comparatively longer history, but fluctuations in its performance have been more pronounced. These fluctuations are perhaps the most important aspect of understanding the nature of momentum investing.

The usefulness of these funds in the near future will depend largely on the direction and speed of the market. If clear sectoral and stock-specific trends emerge in the Indian market, active momentum strategies may perform well. However, if the market repeatedly changes direction, experiences rapid sector rotation, or sees sudden shifts between value and momentum stocks, these funds could also face sharp setbacks. Recent analyses likewise suggest that differences in portfolio rebalancing and investment strategies can lead to significant variations in returns among momentum funds.

Therefore, the most important question for an investor is not which momentum fund will deliver the highest return over the next six months. A more relevant question is whether the investor is prepared to include such a volatile strategy in their portfolio. These funds are not substitutes for an entire equity portfolio, particularly for new investors or those with a low tolerance for risk. They may instead be considered as a limited component of a diversified portfolio.

A long investment horizon—preferably five years or more—and the ability to remain invested even during market downturns may make an investor better suited to momentum funds.

At present, the Nippon India Active Momentum Fund appears to be a strong contender based on recent performance. The ICICI Prudential Active Momentum Fund deserves attention because of its large AUM and emerging track record, while the Quant Momentum Fund may appeal to investors who are comfortable with its more dynamic and aggressive quantitative approach and the volatility that accompanies it.

However, investment decisions involving any of these funds should not be based solely on past returns. A momentum strategy can successfully capture market trends, but when those trends reverse, the same strategy can weaken rapidly. The potential for gains in the near future is certainly present, but so is the risk.

Ultimately, Active Momentum Funds should not be viewed as a magical formula for investing, but as a specialised investment strategy. For investors who already have diversified exposure through large-cap, flexi-cap or index funds and are willing to allocate a limited portion of their portfolio to a higher-risk strategy, this category may have a role to play.

Based on the available data, Nippon India currently appears to have delivered the strongest performance, ICICI Prudential stands out for its size and evolving strategy, and Quant offers the experience of a longer—though more volatile—track record. The wiser approach is not to chase the past performance of any single fund, but to make an investment decision after considering one's risk tolerance, investment horizon and the overall structure of the portfolio.

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* With inputs from agencies and various financial reports.