ABSL MF has begun its journey into factor based passive funds with two launches – BSE 500 Momentum 50 Index Fund and BSE 500 Quality 50Index Fund.
Quarterly rebalancing of portfolios (as opposed to semi-annual) sets these funds apart from the rest as it promises more nimble responses to market movements.
Momentum has vastly outperformed broader markets overlong periods of time, but investors must understand that these funds come with heightened volatility, which they must have risk appetite to ride through, to get the best outcome from these funds.
Quality too has significantly outperformed broad markets over cycles and India is a market that has always rewarded quality with higher valuations and lower volatility.
Deepak says single factor funds (as opposed to multifactor funds) are easier for investors to understand and outcomes are more predictable.
That said, there is a case that can be made to create combos of cap based and factor based funds which align closely with investor needs and risk profiles. Cases in point could be large cap momentum for those who want momentum but with some guardrails and small cap quality to weed out poor quality while chasing alpha from smaller companies.