Welcome to the Future of Investing with
Smart Beta Funds!
Smart Beta Funds represent a new-age revolution in investment strategies, combining the simplicity of passive funds with the intelligence of active management. These funds adopt alternative indexing strategies, using market/fundamental factors approach for selection of stocks, with the aim to outperform traditional indices while maintaining cost efficiency. Whether you’re a seasoned investor or just starting out, Smart Beta Funds can provide a unique blend of risk mitigation and return optimization, tailored to your financial goals.
What Are Smart Beta Funds?
Smart Beta Funds are a new wave in the investment world, combining the advantages of both active and passive fund management. Unlike traditional index funds, Smart Beta Funds use alternate strategy to select and weight stocks based on various factors like value, quality, momentum, and volatility, offering a unique approach to building wealth.
Momentum
Invest in companies
with high momentum
Low Volatility
Invest in
relatively stable
companies
Quality
Invest in
relatively quality
businesses
Value
Invest in companies
which are trading below
intrinsic value
Momentum
Invest in companies
with high momentum
Low Volatility
Invest in
relatively stable
companies
Quality
Invest in
relatively quality
businesses
Value
Invest in companies
which are trading below
intrinsic value
Momentum
Invest in companies
with high momentum
Low Volatility
Invest in
relatively stable
companies
Quality
Invest in
relatively quality
businesses
Value
Invest in companies
which are trading below
intrinsic value
Momentum
Invest in companies
with high momentum
Low Volatility
Invest in
relatively stable
companies
Quality
Invest in
relatively quality
businesses
Value
Invest in companies
which are trading below
intrinsic value
How Do Smart Beta Funds Work?
Smart Beta Funds work by tracking customized
indices that deviate from standard
market-cap-weighted indices. They aim to
capture specific investment factors or market
inefficiencies. By using rules-based, transparent
methodologies, these funds select and rebalance
portfolios systematically to deliver better
risk-adjusted returns.
Key Principles and Advantages of Smart Beta Funds
Potential for Significant
Alpha over Broad Indices Smart Beta Funds aim to outperform traditional
broad-based indices by leveraging factors like
value, quality, or low volatility.
Disciplined Investment with no Fund
Manager Discretion There are defined rules and no fund
manager bias in these types of funds.
Cost Efficiency
(Compared to Active Funds) With lower expense ratios than actively
managed funds, they provide a
cost-effective solution for investors.
Diversification By focusing on specific factors or rules,
these funds offer diversification across
unique market segments.
Potential for Significant
Alpha over Broad Indices Smart Beta Funds aim to outperform traditional
broad-based indices by leveraging factors like
value, quality, or low volatility.
Disciplined Investment with no Fund
Manager Discretion There are defined rules and no fund
manager bias in these types of funds.
Cost Efficiency
(Compared to Active Funds) With lower expense ratios than actively
managed funds, they provide a
cost-effective solution for investors.
Diversification By focusing on specific factors or rules,
these funds offer diversification across
unique market segments.
Performance of Smart Beta Funds in India
In India, Smart Beta Funds have shown promising performance by
outperforming traditional indices in the long term. With a growing interest from
savvy investors, these funds are becoming a popular choice for those looking to
balance risk and reward effectively.
| Broad Markets | Price Broad-Based Factors | Fundamental Factors | Multi-Factors | |||||
| N50 | N200 | Momentum | Alpha | Low Vol | Quality | Value | Alpha Low Vol | |
| CAGR Returns | 13.8% | 13.9% | 20.1% | 18.4% | 18.1% | 17.9% | 16.4% | 18.8% |
| Annualised Standard Deviation | 21.4% | 21.0% | 22.7% | 24.6% | 16.3% | 18.3% | 26.8% | 17.6% |
| Risk-Adjusted Returns | 0.64 | 0.66 | 0.89 | 0.75 | 1.11 | 0.98 | 0.61 | 1.07 |
Disclaimer: “Momentum” refers to Nifty 200 Momentum 30 Index, “ Low Volatility” refers BSE Low Volatility Index* ‘Quality’ refers to Nifty200 Quality 30 Index TRI, ‘Value ’ refers to Nifty 200 Value 50 TRI , “Alpha” refers to Nifty 200 Alpha 30 Index ‘N200’ refers to Nifty 200 TRI, , ‘N50’ refers to Nifty 50 , Alpha Low Vol refers to Nifty Alpha Low Volatility TRI
Data From Sep 16, 2005 to Nov 30, 2024. TRI i.e., 'Total Return Index’ consider reinvestment of dividends issued by companies forming part of Index. Source: MFI Explorer & Nifty Indices Limited.
Past performance may or may not be sustained in the future and shall not be used for comparison with other investments.
Who Should Invest in
Smart Beta Funds?
Smart Beta Funds are ideal for investors looking to:
- Diversify their portfolio with innovative factor-based strategies.
- Gain exposure to specific market factors.
- Enhance returns without significantly increasing risk.
- Invest with a long-term perspective for steady growth.
How to Invest in Smart Beta Funds?
Investing in Smart Beta Funds is straightforward. You can start by:
