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Factor Investing

  • 29 Aug 2024
  • 1 min read

Source: LM

Recently, more Indians have begun investing in factor funds, a relatively lesser-known investment option, as awareness of this stock selection strategy grows.

  • Assets under management in this category surged more than 3 times between 2023 and 2024, highlighting a significant increase in investor interest.
  • Factor-Based Investing Strategy:
    • About:
      • Factor investing involves targeting specific drivers of return (factors) like size, value, momentum, growth, low volatility, and quality across asset classes.
      • In India, the evolution of factor investing has moved from basic indices like Sensex and Nifty to more specialised single-factor funds that emphasise qualities such as quality, value, alpha, and momentum.
    • Advantage:
      • These help improve portfolio returns, reduce volatility and enhance diversification.
    • Examples:
      • Strategic indices on the National Stock Exchange (NSE) include Nifty50 Value 20 and Nifty200 Momentum 30.
    • Performance:
      • These have significantly outperformed the benchmark Nifty 50 in 2024, achieving returns between 15-38%, compared to the Nifty 50's 12% increase.

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