The common perception is that the index funds have minimal portfolio churn and a lower turnover ratio. But what if the index that they are mimicking itself churns its components by more than 65% every time? By their construction, the index funds tracking such an index also need to do the same, leading to high portfolio turnover.
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Funds tracking Nifty500 Momentum 50 Index:
One of such categories is funds tracking the Nifty500 Momentum 50 Index. In its last two constituent updates, this index changed more than 65% of its holdings each time and a whopping 94% over a period of 1 year. This is way higher than most actively managed. Before going deeper into this, let us first understand a bit more about the Nifty500 Momentum 50 Index.
What is Nifty500 Momentum 50 Index and how is it constituted and rebalanced periodically?
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As per NiftyIndices website, “The Nifty500 Momentum 50 Index tracks the performance of 50 stocks which are selected based on normalized momentum score from the Nifty 500 index. The momentum score for each company is determined based on its 6-month and 12-month price return, adjusted for volatility. The weight of each stock in the index is based on the combination of stock’s momentum score and its free float market capitalization.” (1)
In plain language, the top 50 stocks ranked based on their momentum score over 6- and 12-month period out of the Nifty500 universe forms part of the Nifty500 Momentum 50 Index (referred to as Momentum 50 Index hereinafter). The individual stock weights are capped at the lower of 5% or 5 times the weight of the stock in the Nifty500 index. The Momentum 50 Index is reconstituted (or rebalanced) semi-annually in June & December. The following are a few of the criteria based on which reconstitution is carried out (2):
- First one is obvious. Any stock moving out of the Nifty500 is also removed from this index.
- If the ranking of any stock already part of the Momentum 50 Index is within the top 75, then they are retained.
- If the ranking of any stock already part of the Momentum 50 Index is beyond the top 75, then they are excluded and replaced by the next best stocks based on their momentum score.
- Top 25 ranked stocks from Nifty500 Index, and which are not already part of the Momentum 50 Index, are added, replacing the stock with the lowest momentum score.
Recent reconstitutions of the Nifty500 Momentum 50 Index:
For our analysis, we have started with the stocks forming part of the Momentum 50 Index as of 1st July 2024 and analysed the impact of changes in the index due to its reconstitution on 31st Dec 2024(3) and 30th June 2025(4). Here is a quick summary:
| No. of companies out of 50 still forming part of the Momentum Index | 3 Companies |
| No. of companies removed on 31st Dec 2024 | 39 Companies |
| No. of companies removed on 30th Jun 2025 | 8 Companies |
As can be seen from above, only 3 companies out of the original 50 companies continue to be part of the Momentum 50 Index as of 30th June 2025, and a whopping 47 companies (94%) have been removed within 12 months. Out of the 47 companies, 39 companies (78%) were removed within 6 months.
Here is the reconstitution summary of the Momentum 50 Index for 31st Dec 2024 and 30th June 2025:
| 31st December 2024 | 30th June 2025 | |
| No. of companies retained (A) | 11 | 16 |
| No. of companies excluded (B) | 39 | 34 |
| No. of companies added (C) | 39 | 34 |
| Retention Ratio (A/50) | 22% | 32% |
| Exclusion Ratio (B/50) | 78% | 68% |
Out of 50 companies, 39 companies were removed at the time of index reconstitution on 31st Dec 2024, and 11 were retained. Similarly, 34 companies were removed during reconstitution on 30th June 2025, and 16 were retained. Since the total number of companies in the Momentum 50 Index needs to be 50, these companies were replaced with an equal number of companies.
This is not the type of change one expects in an index fund every 6 months.
Top 5/10 Stocks in the Momentum Index:
Since the weightage of individual stocks may differ in the index, let us analyse whether these changes are only for low-weightage stocks or for higher-weightage stocks too.
The weightage-wise constituent is not readily available for historical data, and hence I have used the portfolio of Motilal Oswal Nifty500 Momentum 50 Fund, which is a first such fund launched on 24th September 2024(5). Let us see the impact on its 10 top holdings as of 30th Sept 2024 by reconstitution carried out on 31st December 2024 and 30th June 2025 respectively:
| Sr. No. | Company Name | Weightage as of | ||
| 30th Sept 2024 | 31st Dec 2024 | 30th Jun 2025 | ||
| 1 | Trent Limited | 6.7% | 5.0% | 0.0% |
| 2 | Bajaj Auto Limited | 6.0% | 0.0% | 0.0% |
| 3 | Mahindra & Mahindra Limited | 5.0% | 5.0% | 0.0% |
| 4 | Adani Ports and SEZ Limited | 4.7% | 0.0% | 0.0% |
| 5 | Siemens Limited | 4.4% | 2.8% | 0.0% |
| 6 | Bharat Electronics Limited | 4.4% | 0.0% | 0.0% |
| 7 | Tata Power Company Limited | 3.9% | 0.0% | 0.0% |
| 8 | Hindustan Aeronautics Limited | 3.9% | 0.0% | 0.0% |
| 9 | REC Limited | 3.8% | 0.0% | 0.0% |
| 10 | Suzlon Energy Limited | 3.6% | 0.0% | 0.0% |
| Total | 46.4% | 12.8% | 0.0% | |
As can be seen from the table, only 3 out of the top 10 stocks continued in the Momentum 50 Index after its revision on 31st Dec 2024, and none of them were part of the Index in its subsequent revision on 30th June 2025.
Key Takeaway:
One of the key takeaways from the above analysis is that not all Index funds are equal in all characteristics. Certain indexes, instead of blindly replicating the index, use strategies to generate an alpha vis-à-vis the Index’s return. They can have significantly higher turnover, at times more than actively managed funds. Except for the fact that they mimic the index, these funds are no different from any other active funds in the market. These are fancy funds and are best avoided from being a part of one’s portfolio.
Disclaimer: This is not financial advice, and the readers should reach out to registered investment advisors for any financial advice. Registration granted by SEBI, membership of BASL and certification from National Institute of Securities Markets (NISM) in no way guarantee performance of the intermediary or provide any assurance of returns to investors. Investment in securities market are subject to market risks. Read all the related documents carefully before investing.
Sources:
- https://www.niftyindices.com/indices/equity/strategy-indices/nifty500–momentum–50
- https://www.niftyindices.com/Methodology/Method_NIFTY_Equity_Indices.pdf
- https://nsearchives.nseindia.com//web/sites/default/files/2024-12/ind_prs11122024_0.pdf
- https://nsearchives.nseindia.com//web/pressrelease/2025-06/ind_prs06062025_20250606183553.pdf
- https://www.motilaloswalmf.com/download/scheme-portfolio-details
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