The widespread notion is that the index funds have minimal portfolio churn and a decrease turnover ratio. However what if the index that they’re mimicking itself churns its parts by greater than 65% each time? By their development, the index funds monitoring such an index additionally must do the identical, resulting in excessive portfolio turnover.
In regards to the creator: Vishal is a Chartered Accountant and a SEBI-registered flat-fee solely monetary advisor. You possibly can be taught extra about him and his providers by way of his web site, Bachhat (www.bachhat.cash). He’s a part of fee-only India.
Funds monitoring Nifty500 Momentum 50 Index:
Certainly one of such classes is funds monitoring the Nifty500 Momentum 50 Index. In its final two constituent updates, this index modified greater than 65% of its holdings every time and a whopping 94% over a interval of 1 yr. That is approach larger than most actively managed. Earlier than going deeper into this, allow us to first perceive a bit extra concerning the Nifty500 Momentum 50 Index.
What’s Nifty500 Momentum 50 Index and the way is it constituted and rebalanced periodically?
As per NiftyIndices web site, “The Nifty500 Momentum 50 Index tracks the efficiency of fifty shares that are chosen based mostly on normalized momentum rating from the Nifty 500 index. The momentum rating for every firm is set based mostly on its 6-month and 12-month value return, adjusted for volatility. The burden of every inventory within the index relies on the mix of inventory’s momentum rating and its free float market capitalization.” (1)
In plain language, the highest 50 shares ranked based mostly on their momentum rating over 6- and 12-month interval out of the Nifty500 universe varieties a part of the Nifty500 Momentum 50 Index (known as Momentum 50 Index hereinafter). The person inventory weights are capped on the decrease of 5% or 5 occasions the burden of the inventory within the Nifty500 index. The Momentum 50 Index is reconstituted (or rebalanced) semi-annually in June & December. The next are just a few of the factors based mostly on which reconstitution is carried out (2):
- First one is apparent. Any inventory transferring out of the Nifty500 can be faraway from this index.
- If the rating of any inventory already a part of the Momentum 50 Index is inside the prime 75, then they’re retained.
- If the rating of any inventory already a part of the Momentum 50 Index is past the highest 75, then they’re excluded and changed by the following finest shares based mostly on their momentum rating.
- Prime 25 ranked shares from Nifty500 Index, and which aren’t already a part of the Momentum 50 Index, are added, changing the inventory with the bottom momentum rating.
Current reconstitutions of the Nifty500 Momentum 50 Index:
For our evaluation, we’ve got began with the shares forming a part of the Momentum 50 Index as of 1st July 2024 and analysed the affect of modifications within the index because of its reconstitution on 31st Dec 2024(3) and 30th June 2025(4). Here’s a fast abstract:
| No. of firms out of fifty nonetheless forming a part of the Momentum Index | 3 Corporations |
| No. of firms eliminated on 31st Dec 2024 | 39 Corporations |
| No. of firms eliminated on 30th Jun 2025 | 8 Corporations |
As may be seen from above, solely 3 firms out of the unique 50 firms proceed to be a part of the Momentum 50 Index as of 30th June 2025, and a whopping 47 firms (94%) have been eliminated inside 12 months. Out of the 47 firms, 39 firms (78%) had been eliminated inside 6 months.
Right here is the reconstitution abstract of the Momentum 50 Index for 31st Dec 2024 and 30th June 2025:
| 31st December 2024 | 30th June 2025 | |
| No. of firms retained (A) | 11 | 16 |
| No. of firms excluded (B) | 39 | 34 |
| No. of firms added (C) | 39 | 34 |
| Retention Ratio (A/50) | 22% | 32% |
| Exclusion Ratio (B/50) | 78% | 68% |
Out of fifty firms, 39 firms had been eliminated on the time of index reconstitution on 31st Dec 2024, and 11 had been retained. Equally, 34 firms had been eliminated throughout reconstitution on 30th June 2025, and 16 had been retained. For the reason that complete variety of firms within the Momentum 50 Index must be 50, these firms had been changed with an equal variety of firms.
This isn’t the kind of change one expects in an index fund each 6 months.
Prime 5/10 Shares within the Momentum Index:
For the reason that weightage of particular person shares might differ within the index, allow us to analyse whether or not these modifications are just for low-weightage shares or for higher-weightage shares too.
The weightage-wise constituent will not be available for historic knowledge, and therefore I’ve used the portfolio of Motilal Oswal Nifty500 Momentum 50 Fund, which is a primary such fund launched on 24th September 2024(5). Allow us to see the affect on its 10 prime holdings as of 30th Sept 2024 by reconstitution carried out on 31st December 2024 and 30th June 2025 respectively:
| Sr. No. | Firm Identify | Weightage as of | ||
| thirtieth Sept 2024 | thirty first Dec 2024 | thirtieth Jun 2025 | ||
| 1 | Trent Restricted | 6.7% | 5.0% | 0.0% |
| 2 | Bajaj Auto Restricted | 6.0% | 0.0% | 0.0% |
| 3 | Mahindra & Mahindra Restricted | 5.0% | 5.0% | 0.0% |
| 4 | Adani Ports and SEZ Restricted | 4.7% | 0.0% | 0.0% |
| 5 | Siemens Restricted | 4.4% | 2.8% | 0.0% |
| 6 | Bharat Electronics Restricted | 4.4% | 0.0% | 0.0% |
| 7 | Tata Energy Firm Restricted | 3.9% | 0.0% | 0.0% |
| 8 | Hindustan Aeronautics Restricted | 3.9% | 0.0% | 0.0% |
| 9 | REC Restricted | 3.8% | 0.0% | 0.0% |
| 10 | Suzlon Vitality Restricted | 3.6% | 0.0% | 0.0% |
| Complete | 46.4% | 12.8% | 0.0% | |
As may be seen from the desk, solely 3 out of the highest 10 shares continued within the Momentum 50 Index after its revision on 31st Dec 2024, and none of them had been a part of the Index in its subsequent revision on 30th June 2025.
Key Takeaway:
One of many key takeaways from the above evaluation is that not all Index funds are equal in all traits. Sure indexes, as an alternative of blindly replicating the index, use methods to generate an alpha vis-à-vis the Index’s return. They will have considerably larger turnover, at occasions greater than actively managed funds. Aside from the truth that they mimic the index, these funds aren’t any totally different from another energetic funds available in the market. These are fancy funds and are finest averted from being part of one’s portfolio.
Disclaimer: This isn’t monetary recommendation, and the readers ought to attain out to registered funding advisors for any monetary recommendation. Registration granted by SEBI, membership of BASL and certification from Nationwide Institute of Securities Markets (NISM) on no account assure efficiency of the middleman or present any assurance of returns to traders. Funding in securities market are topic to market dangers. Learn all of the associated paperwork fastidiously earlier than investing.
Sources:
- https://www.niftyindices.com/indices/fairness/strategy-indices/nifty500–momentum–50
- https://www.niftyindices.com/Methodology/Method_NIFTY_Equity_Indices.pdf
- https://nsearchives.nseindia.com//net/websites/default/information/2024-12/ind_prs11122024_0.pdf
- https://nsearchives.nseindia.com//net/pressrelease/2025-06/ind_prs06062025_20250606183553.pdf
- https://www.motilaloswalmf.com/obtain/scheme-portfolio-details
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