Heard of Active Momentum Funds? They’ve Given up to 22% Returns in Flat Market

Momentum investing has traditionally followed a fairly straightforward rule: stay with stocks that are rising and move away from those losing strength.

Over the past year, however, that approach has produced very different results depending on how it was implemented.

The Nifty 200 Momentum 30 index slipped 0.34% during the one-year period examined by ET Money. Eight passive funds tracking the index performed even weaker, posting losses ranging from 0.93% to 2.72%.

Actively managed momentum funds told a different story.

Motilal Oswal’s active momentum fund returned 22.3%, while Union and Nippon India’s funds gained 9.4% and 8.8%, respectively. Samco’s active momentum fund declined 2.3%.

For context, the Nifty 500 TRI returned 0.48% over the same period.

The data, sourced from Ace MF and measured as of July 15, 2026, covers regular plans and active momentum funds with at least one year of history.

The sharp difference between the funds raises a broader question: what allowed some active momentum strategies to perform differently from an index built around the same investment factor?

Passive momentum moves on a fixed schedule

One important difference lies in how frequently portfolios can change.

The Nifty 200 Momentum 30 index selects 30 stocks from a universe of 200 large- and mid-cap companies based on momentum. It rebalances twice each year, in June and December.

That fixed schedule means the index cannot immediately respond when the momentum behind an individual stock changes between two rebalancing dates.

Active momentum funds have considerably more flexibility.

According to ET Money, their quantitative models can screen between 600 and 1,000 stocks using both price and earnings momentum. Fund managers can alter holdings when their models indicate that conditions have changed rather than waiting for a scheduled index rebalance.

The difference becomes particularly visible in portfolio turnover.

Active funds are trading far more frequently

Samco recorded a portfolio turnover ratio of 851%, meaning its portfolio turned over more than eight times during the year.

Union’s turnover ratio stood at 381%, while Motilal Oswal’s was 240% and Nippon India’s was 140%.

By comparison, UTI’s passive momentum fund recorded a turnover ratio of 118.3% as of March 31, 2025.

The figures do not establish that higher turnover automatically produces higher returns. Samco, despite having the highest turnover among the funds compared, delivered a negative one-year return.

They do show how differently active and passive momentum strategies can operate.

An active fund can react more frequently to changing momentum signals, while an index fund remains tied to the rules and rebalancing schedule of its underlying benchmark.

Small-cap exposure created another point of difference

The investible universe is also different.

The Nifty 200 Momentum 30 is restricted to large- and mid-cap companies. Its portfolio was split evenly between the two segments in ET Money’s comparison, leaving it with no small-cap exposure.

That mattered during the period studied because the Nifty 100 had declined 1.7% over the year, while small caps recorded a modest positive return of 1.4%.

Active momentum funds were not subject to the same restriction.

Union’s average allocation over the preceding 12 months stood at 23.4% in large caps, 34.6% in mid caps and 35.8% in small caps.

Samco held 13.3% in large caps, 27.1% in mid caps and 40.1% in small caps, alongside a 19.5% cash position.

Motilal Oswal averaged 25.4% in large caps, 36.4% in mid caps and 27.9% in small caps. Its small-cap allocation had reached as high as 54.5% during the period.

Nippon India was the most large-cap-heavy of the four active funds, with 46.9% in large caps, 34.1% in mid caps and 15.7% in small caps.

These differences mean the performance gap cannot be viewed purely as a comparison between active and passive management. The portfolios themselves were exposed to different parts of the market.

Active funds can also make larger individual bets

Portfolio concentration added another distinction.

Motilal Oswal’s fund had 8.3% of its portfolio invested in Sterlite Technologies.

Samco’s largest position was Clearing Corporation of India at 9.1%, while it also held 6.3% in Sterlite Technologies.

The Nifty 200 Momentum 30 was less concentrated at the individual-stock level.

Its two largest positions were Shriram Finance at 5.08% and Cummins India at 5.06%.

Larger individual positions can have a greater effect on a fund’s overall return when those stocks move sharply. The same concentration can also work against a portfolio when a large holding performs poorly.

Higher flexibility comes with higher expenses

The ability to trade more frequently and move outside the index universe is not free.

ET Money’s comparison showed considerably higher expense ratios among active momentum funds.

Motilal Oswal’s expense ratio stood at 2.70%, followed by Union at 2.44% and Samco at 2.41%. Nippon India had the lowest expense ratio among the four active funds at 1.68%.

UTI’s passive momentum fund charged 0.95%.

Investors in active momentum funds were therefore paying substantially more for active portfolio decisions, broader stock selection and the ability to respond more frequently to changing momentum.

Higher expenses matter because they reduce the returns ultimately available to investors and continue to apply irrespective of whether active management produces better performance.

The gap between active funds was almost 25 percentage points

The one-year returns also reveal another important part of the active-versus-passive comparison.

Active management did not produce similar outcomes across funds.

Motilal Oswal delivered 22.3%, while Union returned 9.4% and Nippon India gained 8.8%. Samco declined 2.3%.

That puts nearly 25 percentage points between the strongest and weakest active momentum funds in the comparison.

The variation is important because choosing an active momentum strategy also introduces differences in fund-manager decisions, portfolio construction, trading frequency, market-cap allocation and individual-stock exposure.

Simply selecting an “active momentum” fund therefore would not have produced a uniform outcome during the period examined.

One year does not settle the active-versus-passive debate

The recent numbers strongly favoured some actively managed momentum funds.

Motilal Oswal’s 22.3% return was particularly notable during a period when the Nifty 200 Momentum 30 declined 0.34% and the Nifty 500 TRI gained only 0.48%.

But the comparison covers a one-year period.

It does not establish that active momentum funds will consistently outperform passive momentum strategies across different market cycles.

The mechanics behind the recent divergence are nevertheless clear.

Active funds had greater freedom to move across market-cap segments, trade more frequently, change holdings without waiting for scheduled index rebalancing and take larger positions in individual stocks.

Those advantages came with considerably higher expenses and a much wider spread in performance between individual funds.

The recent experience therefore shows that momentum investing can produce substantially different results depending on how the strategy is constructed and implemented.

For investors assessing these funds, the headline return is only one part of the picture. Portfolio turnover, market-cap exposure, concentration, expenses and the differences between individual active strategies are equally important when understanding where those returns came from.

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