Mirae Asset Mutual Fund is introducing an ETF and a Fund of Funds tracking the BSE Midcap 150 Momentum 30 Index. These products offer passive exposure to mid-sized companies with strong price trends. Investors should note that momentum strategies can be highly volatile, and the midcap segment carries its own inherent market risks.
What Happened
Mirae Asset Mutual Fund is expanding its passive investment lineup with the launch of two new products tied to the BSE Midcap 150 Momentum 30 Index. The fund house is offering both an Exchange Traded Fund (ETF) and a Fund of Funds (FoF). The New Fund Offers (NFOs) for these schemes open on July 6, with the ETF NFO closing on July 13 and the FoF NFO remaining open until July 20.
These funds aim to replicate the performance of the index, which selects 30 stocks from the broader midcap universe based on a specific momentum-based strategy. The minimum investment amount for both schemes during the NFO is ₹5,000.
Understanding Momentum Investing
Unlike traditional index funds that pick stocks based on size or sector, momentum funds operate on a mathematical, rules-driven approach. The core idea is that stocks that have shown strong price performance over a recent period (often 12 months) are likely to continue that upward trend in the near future.
The BSE Midcap 150 Momentum 30 Index identifies these 30 companies based on risk-adjusted momentum scores. Essentially, the fund is programmed to automatically follow the market's current trend, buying what is rising and selling what is falling. This process is passive, meaning there is no fund manager actively picking stocks based on company fundamentals or quarterly financial results.
The Risks Of A Midcap Momentum Strategy
Investors should be aware that combining a momentum strategy with the midcap segment creates a unique risk profile. Midcap companies—those ranked 101st to 250th in size—are generally more sensitive to market downturns and liquidity issues than large-cap stocks.
When a market trend reverses, momentum strategies can see rapid and sharp declines because the strategy is designed to stay invested in winners. If the 'winning' stocks suddenly start falling, the portfolio can lose value quickly. Additionally, the index undergoes quarterly rebalancing, meaning the fund will frequently buy and sell stocks to align with the index composition. This high turnover can result in transaction costs that may impact the fund's returns over time, even if it is a passive product.
ETF Versus Fund Of Funds Structure
Investors have two ways to access this strategy, each with different operational requirements. The ETF is traded on the stock exchange like a normal share, which requires a demat and trading account. This provides real-time pricing during trading hours.
The Fund of Funds (FoF) is a mutual fund scheme that invests in the underlying ETF. It does not require a demat account and can be purchased just like a standard mutual fund. However, investors should be mindful that an FoF may have a higher total expense ratio because it carries the costs of the underlying ETF plus the management expenses of the FoF itself. Mirae Asset has noted this distinction, highlighting that costs can differ between the two routes.
What Investors Should Track Next
For those considering these products, the primary monitorables include the index's rebalancing cycle and tracking error. Tracking error measures how closely the fund’s performance aligns with the underlying index. In a momentum strategy, this gap can sometimes widen due to the frequency of stock buying and selling. Investors may also watch how the fund performs during periods of high market volatility, as the strategy is tested most severely when market directions change unexpectedly.