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Introduction
Mutual fund investors often hear the terms “Momentum” and “Value” — but what do they really mean, and how do they impact your returns? These are two widely used factor-based investment strategies, and each has its own strengths, timing, and temperament.
In this blog, we break down the difference between Momentum and Value investing in mutual funds and show you how each performs through the journey of two investors — Rahul and Sneha.05/06/2025
Momentum investing is about chasing recent winners. Funds using this strategy invest in stocks that have performed well recently, assuming the trend will continue in the short to medium term.
Think of it like surfing the wave — catch the trend, ride the rally, exit before it breaks.
Works best in bull markets and rising sectors.
May fall sharply when momentum breaks or reverses.
Value investing is the opposite — it’s about finding undervalued gems. These funds invest in fundamentally strong stocks that are currently trading below their intrinsic value. Think of it as patient investing — buy low, wait for the value to unlock over time. Works best in recoveries and sideways markets.
May underperform during high-growth bull markets.
Real-Life Example: Rahul (Momentum) vs. Sneha (Value)
| Feature | Momentum Funds | Value Funds |
|---|---|---|
| Stock Focus | Recent winners | Undervalued, strong fundamentals |
| Performance Pattern | High in bull runs, sharp falls | Steady, long-term growth |
| Ideal Investor Type | Aggressive, trend-seekers | Patient, long-term thinkers |
| Volatility | High | Medium |
Conclusion
Momentum is for those who love speed, while value is for those who value patience. Both strategies work — but only if the investor matches the fund’s temperament. Choose wisely!
Review your risk appetite and time horizon. If you can handle volatility, momentum might suit you. If you prefer stability, value investing could be your path.
Summary Table: Momentum vs Value Strategies
| Strategy | Avg. Return (5 Yr CAGR) | Avg. Risk (Volatility) | Avg. Investor Behaviour |
|---|---|---|---|
| Momentum Funds | 12% – 15% | High | Impulsive, prone to panic exits |
| Value Funds | 10% – 12% | Medium | Patient, disciplined SIPs |
| No Strategy | 6% – 9% | High | Random, emotionally driven |
Dr. Satish Vadapalli
Research Analyst
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