Factor funds have experienced remarkable growth in India, with industry assets under management rising to over ₹50,000 crore as of 30 April 2026, according to data from Mirae Asset Investment Managers (India). This represents a dramatic increase from less than ₹1,000 crore five years ago, demonstrating the growing investor interest in systematic investment approaches. According to a study by PGIM India Mutual Fund, factor indices have delivered annualized returns of 14-19% over the last 10 years, compared to Nifty 50 and Nifty 500 annualized returns of around 12-13%. The return comparison is based on the total return index (TRI), which accounts for both price and dividend gains.
Factor investing targets specific investment traits rather than individual stocks, focusing on value (undervalued stocks), momentum (stocks in uptrend), quality (financially strong companies), and low volatility. As reported by Mint, these factors outperform at different points in market cycles, with value identifying undervalued stocks trading below intrinsic value, quality focusing on businesses with strong profitability and healthy balance sheets, momentum betting on stocks in rising trends, and low volatility building portfolios of stocks with smaller price swings. Equal weight strategies assign equal weight to every stock regardless of market capitalization, reducing dominance of large companies and allowing smaller constituents to contribute more evenly to overall gains.
Historical data from 2006 to 2026 shows significant factor rotation patterns across different market phases. According to Mint reports, momentum factor returns rose sharply in 2006 (60.3%) and 2007 (128.9%), but fell 64.2% in 2008 during the global financial crisis. Low volatility was the least impacted in 2008 at negative 41.8%, while value, which had gained 109% in 2007, collapsed 56.7% in 2008. The 2009 recovery showed value storming back with 133% gains as undervalued stocks rebounded, while momentum lagged at 61.3% and low volatility participated least at 90.8%. As reported by Edelweiss Mutual Fund, quality emerged as the best performer in 2020 with 27.6% returns during the COVID-19 crash, while value gained only 8.5%.
Year-to-date performance data shows mixed results across factors as of 12 May 2026. According to Mint reports, value factor has been positive at 5.2% in the current environment where market valuation concerns have kept investors cautious, while quality factor returned 1.6%. However, momentum (-1.6%), equal weight (-1.2%), and low volatility (-4.9%) are all in negative territory. The broader market benchmarks have returned negative 6.4% for Nifty 500 TRI and negative 10.4% for Nifty 50 TRI over the same period, highlighting the potential value of factor-based strategies during volatile market conditions.
Given the cyclical nature of factor returns, industry experts recommend a multi-factor approach that combines strategies with opposing tendencies. As reported by Mint, complementary styles such as momentum with low volatility, or value with quality can help mitigate cyclical underperformance periods. According to PGIM India Mutual Fund's Abhishek Tiwari, no single style has performed consistently, but they do outperform the market over the long term, making diversification across different styles essential for protecting against style rotation. Factor funds are positioned as diversification layers for investors who have built foundations through traditional mutual funds, working best as rules-based funds that complement rather than replace core portfolio strategies.
