Value and Momentum Lead the Way: Is Quality Losing Its Mojo?

Mutual funds has been a preferred investment vehicle for millions of retail investors, democratizing wealth creation. This commitment is reflected in the growth of the Indian mutual fund industry witnessing a threefold jump in the last five years. According to the AMFI July 2025 data, the industry’s assets under management (AUM) has surged from ₹27.12 trillion in July 2020 to ₹75.36 trillion in July 2025. This growth has been fuelled by wider retail participation, digital adoption, and record inflows across equity and hybrid schemes.

As the industry powers ahead, the focus is shifting from merely chasing returns to understanding how portfolios are constructed and managed. In today’s dynamic market, recognizing a fund’s investment style whether it is Value, Momentum, or Quality, has become essential for building resilient portfolios and achieving consistent performance.

Investment styles respond differently to market cycles. Value funds typically perform well when stock prices are high and investors look for undervalued companies. Momentum funds thrive during strong market rallies, harnessing current trends for maximum gains. On the other hand, Quality funds perform better during market uncertainties. These are funds that provide investors with stability by investing in companies with strong fundamentals and consistent cash flows.

Historically, Quality investing has fared well but in recent years it has been struggling to keep pace with its more aggressive counterparts. For example, from 2018 to 2020, Quality style of investing did significantly better than Value and Momentum investment styles.  However, in recent years, Value and Momentum funds have gained prominence due to their relative outperformance. According to the CRISP Mutual Fund Scorecard (June 2025) by Share.Market (PhonePe Wealth), categories like Large Cap, Midcap, ELSS, Contra/Value, Large & Midcap, and Aggressive Hybrid funds favoured value investment style. While Small Cap and Flexi Cap funds tilted towards Momentum style. In contrast, Quality-focused funds, while making a gradual comeback, continue to lag in terms of sustained performance over the last five years.

Additionally, the scorecard revealed that Value tilted funds not only outperformed but also witnessed significant allocation of asset under management (AuM) commanding more than ~40% of the total AuM of funds covered. Momentum, the second most dominant investment style, showing high performance consistency, commands a mere ~14% of AuM. This is because large-sized funds cannot make frequent changes in the portfolio as required for momentum style of investing. Interestingly, Quality focused funds saw an allocation of ~22% of the total AuM, spotlighting that investors continue to support stable, low risk funds.

So, what does all this mean for you as an investor? This shift reflects changing market dynamics wherein investors are rewarding strategies that focus on either buying undervalued stocks (Value) or following strong price trends (Momentum). Meanwhile, Quality funds have faced challenges due to higher valuations and slower growth.

Value and Momentum may lead now, but Quality funds still play an important role. Market cycles tend to repeat, so spreading investments across different styles is key for long-term success.

As the Indian mutual fund industry matures and retail participation deepens, tools like the CRISP which provides investors with deep insights by analyzing performance consistency, relative risk, and investment style of funds over a five-year period are becoming invaluable. They help investors look beyond returns enabling more informed and diversified investment decisions that can weather market cycles effectively.

No Moneycontrol journalist was involved in this article

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