Samco MF again restricts investments in active momentum fund

Active momentum funds invest in stocks that exhibit momentum characteristics and sell those stocks when those stocks lose momentum.

Asset management company Samco Mutual Fund has announced that its active momentum fund will temporarily suspend fresh lump sum subscriptions from March 1.

The curbs on the Samco Active Momentum Fund come within days of the fund house lifting restrictions, which were enforced in July, on fresh investments on January 31.

In a February 12 notice, the fund house said with effect from March 1, any subscriptions in the form of fresh purchases, additional purchases, switch-in, new STP-in (systematic transfer plan) shall be temporarily suspended.

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“The scheme will continue to accept new systematic registrations for SIP (systematic investment plan) and also allot units for subscription pursuant to SIP, STP-in registered prior to the effective date, in terms of the Scheme Information Document of the Scheme,” it said.

Samco Active Momentum Fund was launched in July last year, and this is the first time when the scheme is accepting fresh subscriptions after the New Fund Offer (NFO) period.

"The proprietary momentum indicators that we have built-in, warrant one point of entry and one point of exit. So, we accept fresh subscriptions for small periods. So, once we know the amount, we can put it in the algorithm and strategise investments. Further, we also believe that the momentum strategy cannot be played with an unlimited amount, that's why we are restricting subscriptions from time to time, depending on the market condition and what we need in terms of a model subscription and at what point in time. That's why we have kept point-to-point subscription," said Viraj Gandhi, Chief Executive Officer, Samco Mutual Fund.

As per Gandhi, the fund will always work on the strategy where fresh subscriptions would be allowed for a limited period.

Samco Mutual Fund collected Rs 409 crore during the NFO period of its active momentum fund, with over 25,000 investors subscribing to the scheme in June last year.

Launched in July 2023, Samco Active Momentum Fund has delivered 30 percent return since inception with assets under management (AUM) of Rs 540 crore as of January end.

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Explaining the rationale behind the restrictions last year, Gandhi has earlier said, “First, we needed to have control of the fund flow, because if you get unlimited flows, momentum as a strategy cannot be deployed properly. Point two, there is an inverse correlation between the fund size and momentum returns. So, the larger the fund, the smaller the returns.”

Active momentum funds invest in stocks that exhibit momentum characteristics and sell those stocks when they lose momentum.

It is a strategy to invest in winning stocks showing strong momentum. It is based on the thinking that the stocks which performed well in the past relative to other stocks (winners) will continue to perform well in the future and the scrips that performed relatively poorly (losers) will continue to do so.

The momentum strategy is based on buy-high, sell higher or alternatively, cut your losses and let your winners run.