Factor investing is a systematic investment approach that targets specific, well-researched drivers of returns — called factors — that have historically delivered excess returns over the market over long periods. The most widely recognised factors in equity markets are: Value (buying cheap stocks relative to fundamentals), Momentum (buying recent outperformers), Quality (preferring companies with strong balance sheets and high return on equity), Low Volatility (favouring less volatile stocks), and Size (small-cap premium). In India, factor investing is available through Smart Beta ETFs and index funds offered by AMCs that track factor-based indices — such as the Nifty 200 Momentum 30, Nifty 50 Value 20, and Nifty Alpha 50 indices. Factor premiums are not constant — they go through extended periods of underperformance — so factor investing requires a disciplined long-term approach. Multi-factor strategies that combine two or more factors are increasingly popular among sophisticated Indian investors.
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