Indian investors are increasingly turning to a lesser-known investment option called factor funds. These funds focus on specific traits like size, value, momentum, growth, low volatility, and quality to deliver better returns.
The assets under management for factor funds have surged from ₹7,050 crore to ₹26,363 crore in just one year, showing a significant rise in interest. According to Feroze Azeez, deputy CEO at Anand Rathi Wealth, the best-performing factor fund delivered around 80% returns, while even the worst one achieved about 25%.
Factor-based investing, which has been popular globally since the 1960s, began in India with simple indices like Sensex and Nifty. It has now expanded to include single-factor funds and multi-factor funds that combine different strategies.
This investment style relies on the specific factor it focuses on. For example, momentum was doing well before the general election, but as market volatility increased, low volatility and quality became more attractive.
Experts say that factor funds perform well even in challenging markets and can be a smart addition to an investor’s portfolio, especially when combining factors like alpha and momentum.
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