Momentum index funds compared: fees, lag and size

The question

Our look at whether smart beta funds are worth it found momentum to be the most crowded and the most expensive factor. This post goes one step further. When eight funds track the same momentum index, what separates them?

The figures are for Direct plans, Growth option, with NAVs to Friday 9 October 2026. Expense ratios are AMFI's disclosures dated 30 September to 8 October 2026. Assets are AMFI's average for July to September 2026, all plans of the scheme together. The index return is our estimate: NSE's total return index is not in our database, so we rebuilt it from the daily price index and dividend yield.

What the index actually does

The Nifty200 Momentum 30 starts from the 200 stocks in the Nifty 200. Each is scored on its 6-month and 12-month price return, each divided by the volatility of its daily returns. The 30 highest scores go in. A stock's weight is its free-float market value multiplied by its score, capped at 5% or five times its plain market-cap weight, whichever is lower. The index is rebalanced in June and December (NSE factsheet).

That rule moves fast. In the June 2026 review 22 of the 30 stocks changed, and financial services fell from 48% of the index to 21% (HDFC Mutual Fund's review). Five of the funds' September disclosures show portfolio turnover of 146% to 168% a year. At the end of September the largest holding in UTI's fund was Laurus Labs, at 6.5%.

Eight funds, one index

The lag is the index's estimated return minus the fund's. Tracking error is the annualised spread of the fund's daily returns around the index's over the same year.

Three things stand out.

Fees explain most of the lag, not all of it. Across the eight funds the correlation between expense ratio and one-year lag is 0.72. The most expensive, Baroda BNP Paribas at 1.02%, lagged most. On ₹1 lakh that fee is ₹1,020 a year, against ₹680 at Kotak's 0.68%.

Size helps. UTI charges 0.82%, more than five of the other seven, yet had the smallest lag over one year and over three: 0.57 points a year against 0.79 to 1.19 for the other four with a three-year record. It holds ₹8,384 crore, 74% of the money in these eight funds.

They all track tightly day to day. Tracking error of 0.24% to 0.51% a year is small. The gap investors lose is the steady drip of fees and trading, not noise.

The ETF route

The same index has five ETFs. HDFC's NIFTY200 Momentum 30 ETF charges 0.30%, the lowest of any tracker of this index, and ICICI Prudential's ETF, the largest at ₹561 crore, charges 0.70%. Yet over the year HDFC's ETF returned −5.74%, a lag of 0.63 points, almost the same as UTI's index fund at 0.82%. Over three years it returned 8.87% a year, behind UTI's 9.11%.

Turnover of around 150% a year means a lot of buying and selling every June and December, and those costs land in the NAV on top of the fee. An ETF also has to be bought on the exchange, where the price can drift from the NAV. Our post on index funds versus ETFs covers that trade-off.

The midcap and Nifty 500 versions

Two sibling indices apply the same scoring and the same June and December rebalance to a different pool: the Nifty Midcap150 Momentum 50 picks 50 midcaps, and the Nifty500 Momentum 50 picks 50 stocks from the Nifty 500.

Nippon India's lag of 0.16 points is smaller than its own fee. Over a single year that can happen when rebalancing trades land well; it is not something to count on repeating. Over three years the two older midcap funds trailed their index, an estimated 14.50% a year, by 0.87 points (Edelweiss, 13.63%) and 1.44 points (Tata, 13.06%).

Did the factor earn its fee?

Over three years the Nifty200 Momentum 30 returned an estimated 9.68% a year with dividends. The Nifty 200 it picks from returned an estimated 9.14%. The funds kept 8.49% to 9.11%, so all five with a three-year record ended up behind the plain parent index, though a Nifty 200 fund would have had costs of its own. Over five years the picture is better: an estimated 8.79% a year for the momentum index against 7.92% for the Nifty 200, and UTI, the only fund with five years, kept 8.14%, ahead of the parent.

The midcap version shows the same squeeze: an estimated 14.50% a year for the momentum index over three years against 14.17% for the Nifty Midcap 150. After costs, Edelweiss's 13.63% and Tata's 13.06% were both below the plain midcap index.

The ride was rougher too. Over the three years the Nifty200 Momentum 30 fell as much as 31.8% from a high, against 18.1% for the Nifty 200, and the funds' own worst falls were 31.5% to 31.8%.

What this does not tell you

The index figures are estimates. We added NSE's daily dividend yield to the price index. NSE's official total return series could differ by a few tenths of a point a year, which would move every lag in the tables by the same amount.

One year holds just two rebalances. A fund's lag in one year can be smaller or larger in the next, as Nippon India's shows.

The tracking error on each fund's page is a different number. It is measured against the Nifty 500 TRI, the broad benchmark for the category, so it reads 7.8% to 8.3% for the Nifty200 Momentum 30 funds. That is why no momentum fund appears in the index funds that track screen.

Today's fee is not the fee they always charged, which blurs the three- and five-year comparisons.

None of this is a recommendation to buy or sell any fund. The factor investing guide explains how momentum is supposed to work, and factor indices in 2026 follows the index through this year. Every fund here is on the index fund page.