Max Life Nifty Momentum Quality 50 Fund

In order to better understand the stock selection procedure of this fund, one needs to have a better understanding of how the composite momentum quality of each stock included in the underlying index is calculated.

The momentum score of a stock is determined on the basis of the 6-months and 12-months price return of the stock adjusted for volatility. So, a stock with a high momentum score will therefore be a company whose shares have witnessed upward movement in the previous 6-months and 12-months period. Additionally, the underlying principle of the momentum strategy anticipates that the upward price movement of these high momentum stocks will continue to be driven by momentum in the future.

The quality score of a stock on the other hand, takes into account the financial leverage (Debt/Equity Ratio), return on equity (RoE) and EPS earnings growth variability analysed over the past 5 year for individual stocks. This way, stocks with high quality score would typically belong to companies that have relatively stronger financials compared to their peers.

The stocks that Max Life Momentum Quality 50 Fund will invest in feature the highest combined momentum and quality scores among companies that are part of the Nifty 500 Index. The final list of stocks and their individual stock weight on the index is arrived at after taking into account the composite momentum quality score and the free-float capitalization of each stock that are part of the stock universe. Another thing to remember is that to ensure a multi-cap orientation of the fund portfolio, only 10 large cap stocks, 15 midcap stocks and 25 small cap stocks are selected for inclusion into the fund portfolio from the available stock universe.

The Max Life Nifty Momentum Quality 50 Fund is a passively managed fund that will track the Nifty 500 Multicap Momentum Quality 50 Index. The fund will thus invest in 50 stocks out of which 10 will be large cap, 15 mid cap and remaining 25 will be small cap companies. As a result of stock selection across various market capitalizations, the fund portfolio will feature a multi-cap orientation.

The selection of these stocks is exclusively made from the Nifty 500 Index and is based on a composite of the momentum and quality scores of the individual stocks. As a result of considering both the momentum and quality scores when selecting stocks to be featured in the Max Life Nifty Momentum Quality 50 Fund, investors are expected to benefit from market momentum of leading high quality stocks across various market capitalizations.

So, in effect, this fund from Max Life Insurance will attempt to replicate the performance of an index that aims to track the performance of large cap, midcap and small cap stocks that are selected by combining various momentum and quality factors. This index undergoes reconstitution on a semi-annual basis in June and December of each year. At the time of reconstitution, new stocks may be included and existing stocks may be removed from this index.

The following is a quick snapshot of the Max Life Nifty 500 Momentum 50 Index Fund, highlighting its key features:

The multicap approach of Max Life Nifty Momentum Quality 50 Fund is designed to help investors benefit from investments made in a diversified investment portfolio that features 10 large cap, 15 midcap and 25 small cap stocks. Additionally, the individual weight of any individual stock at the time of index reconstitution does not exceed 5% of the overall portfolio. This is designed to further limit the concentration risk for the investor.

Additionally, the stock-selection procedure is transparent as per the rules provided by the NSE, so there is no risk of fund manager bias or intervention at the time of stock picking. Moreover, the underlying index combines the benefits of momentum and quality factors as part of the overall stock-selection process. This ensures that investors can gain access to an investment portfolio that consists of high quality stocks that have the potential of witnessing significantly high stock price increase in the near future.

Another thing to keep in mind is that this fund will be part of a Max Life ULIP offering such as the Max Life Online Savings Plan. This means that investors will receive life cover benefit in addition to the potential for capital appreciation, unbiased professional fund management and benefit of momentum as well as quality investment strategies.

The Max Life Nifty 500 Momentum 50 Fund would replicate the composition and weight of the basket of 50 equity stocks featured on the Nifty 500 Momentum 50 Index. The goal of this index fund would be to mimic the performance of the index as closely as possible within the margins of applicable tracking error.

As mentioned in the previous section, the Max Life Nifty 500 Momentum 50 Fund comprises the top 50 NSE stocks selected on the basis of their normalised momentum score. The scheme itself will be passively managed, so it will mimic the weightage of Nifty 500 Momentum 50 Index. The top 10 constituents of the index and by the new are tabulated below, along with their individual weights as of 28 June 2024:

As the Max Life Nifty Momentum Quality 50 Fund is a new fund, there is no prior performance data as of yet. However, since the scheme will attempt to replicate the performance of the Nifty 500 Multicap Momentum Quality 50 Index, the historical performance of the index can serve as an indication of performance that investors can look forward to by making the investment.

Below are the returns of the Nifty 500 Multicap Momentum Quality 50 Index over the 1 year, 3 year, 5 year and 10 year period versus the broad-based Nifty 500 Index as of 16 October 2024:

There are various reasons why one should consider investing in the Max Life Nifty Momentum Quality 50 Fund. Some of the key ones to consider include:

Apart from the newly launched Max Life Nifty Momentum Quality 50 Fund, Max Life Insurance has introduced 4 other index funds based on smart beta indices. These are Max Life Nifty Small Cap Quality Index Fund, Max Life Midcap Momentum Index Fund, Max Life Nifty Alpha 50 Fund and Max Life Nifty 500 Momentum 50 Fund in August'23, January'24, May'24 and August’24 respectively.

Max Life Nifty 500 Momentum 50 Fund features flexi-cap stock selection and invests primarily in 50 stocks of the broad based Nifty 500 Index. These 50 stocks are selected on the basis of their momentum scores. Since the parent index features stocks from large, mid as well as small cap segments, the fund portfolio features a multicap orientation.

In the case of the MLI Nifty Small Cap Quality Fund, the fund primarily invests in the top 50 small cap companies that are part of the Nifty Smallcap 250 Index and feature the highest quality score in the segment. On the other hand, the Max Life Nifty Midcap Momentum Fund investments only in midcap stocks belonging to the Nifty Midcap 150 Index. The 50 stocks included in the portfolio are ones that have the highest momentum scores in the category. Lastly, the Nifty Alpha 50 Fund invests in companies that are part of the Nifty 500 Index and feature the highest Jensen's Alpha scores in the category.

The first two funds focus on stocks belonging to a single type of market capitalisation only, i.e. small cap and mid cap, respectively. Whereas, in the case of Max Life Nifty Alpha 50 Fund and the Max Life Nifty 500 Momentum 50 Fund, constituent stocks are drawn from different market capitalisations that offer a more diversified flexicap approach to passive investing.