Money n Wealth October 23, 2026 11 min read Last reviewed October 21, 2026
    Over the five years to September 2026, the Nifty200 Value 30 index returned 20.56% a year while the Nifty200 Quality 30 managed 4.67%, both against 7.16% for the Nifty 200. Factor funds can beat the market, but which factor wins changes, sometimes for years.

    Frequently Asked Questions

    What is a smart beta fund in India?

    A smart beta fund is an index fund or ETF that tracks a rules-based index selecting or weighting stocks by a factor such as momentum, quality, value, low volatility or alpha, instead of by market cap alone. It has no fund manager discretion, but it deliberately differs from the broad market. Examples of underlying indices include Nifty200 Momentum 30 and Nifty100 Low Volatility 30.

    Which factor has performed best in India?

    Over the long run, momentum. IIM Ahmedabad's factor data show a momentum premium of 10.65% a year from 1994 to 2025, against 6.61% for value. Over the five years to September 2026, though, the Nifty200 Value 30 index led with 20.56% a year. Leadership rotates, so past winners are not a reliable guide.

    How often are NSE factor indices rebalanced?

    Nifty200 Momentum 30, Nifty200 Quality 30 and Nifty200 Value 30 are reconstituted semi-annually, with momentum and value reviewed in June and December. Nifty100 Low Volatility 30 is rebalanced quarterly. Frequent rebalancing means higher turnover and trading costs inside the fund, which show up in tracking difference.

    Are momentum funds risky?

    Yes, relatively. Momentum portfolios concentrate in recent winners and can change many holdings at each review. Research by Daniel and Moskowitz shows momentum suffers occasional severe crashes, especially when markets rebound sharply after a fall. Momentum funds suit investors with a long horizon who can sit through deep drawdowns.

    How are factor index funds taxed?

    Exactly like other equity index funds. Units held over 12 months attract 12.5% tax on long-term gains above ₹1.25 lakh a year; units held for 12 months or less are taxed at 20%. Rebalancing inside the fund does not create tax for you. Only your own redemptions or switches do.

    How much of my portfolio should be in smart beta funds?

    There is no fixed rule, but many planners treat factor funds as a satellite: about 10–30% of equity, alongside a broad index or diversified core. The right share depends on your horizon, how well you understand the factor and whether you can tolerate years of underperformance without selling.

    Is a low volatility fund safe?

    No equity fund is safe. Low volatility funds usually fall less than the market in corrections because they hold stocks with steadier prices, but they still lose money in bear markets. In the year to September 2026, the Nifty100 Low Volatility 30 fell 5.70%, more than the Nifty 200's 4.15% decline.

    Wondering whether a factor tilt fits your portfolio?

    Factor funds help only if their behaviour suits your goals and temperament and complements what you already own. Talk to Money n Wealth for a free portfolio review.

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