Indian investors are discovering the power of factor investing

livemint.com:

₹7,050 crore to ₹26,363 crore in the year through July, reflecting a significant increase in investor interest, said Feroze Azeez, deputy chief executive officer at Anand Rathi Wealth. “The best-performing fund in this category delivered around 80%, while the worst-performing fund achieved about 25%." “The rise in inflows and the launch of new funds—49 in total, with 9 introduced this year—indicates that this investment style has picked up considerable traction," said Azeez. Factor-based investing has been globally recognized since the 1960s as stock-pickers looked for traits that could deliver better risk-adjusted returns than traditional strategies.

In India, it began with simple size factors like Sensex, Nifty, and mid-cap, and gradually transitioned to single-factor funds focused on quality, value, alpha, and momentum, said Bhavesh Jain, co-head-factor investing, Edelweiss Mutual Fund. Simply put, strategic indices on the NSE, such as Nifty50 Value 20, Nifty100 Low Volatility 30, Nifty200 Quality 30, Nifty Alpha 50, and Nifty200 Momentum 30, are all based on specific factors. These indices have returned 15-38% gains so far in 2024 compared to the benchmark Nifty 50’s 12% rise.

Now, there are multi-factor funds such as alpha-low vol and size-quality-momentum in the passive segment, while asset managers are launching actively managed factor-based schemes, said Jain. According to Nirav Karkera, head of research at Fisdom, while this investing approach has always been a part of Indian investment styles, it was not utilised as a distinct category. The performance of such investing style relies on the factor the fund focuses on.