Indian mutual fund investors now have two new factor-based passive investment options with the launch of New Fund Offers (NFOs) from Kotak Mahindra Mutual Fund and Groww Mutual Fund. These funds aim to capitalize on specific investment factors such as alpha, low volatility, momentum, and quality, offering rules-based strategies to target different market segments.
The NFOs are open for subscription from May 29 to June 12, 2026. Investors considering these new products should understand their unique risk-return profiles.
Kotak Nifty Alpha Low-Volatility 30 Index Fund
Kotak Mahindra Asset Management Company has launched an open-ended index fund that tracks the Nifty Alpha Low-Volatility 30 Index. This index comprises 30 stocks selected based on two key factors:
- Alpha: Stocks with a history of outperforming the broader market.
- Low Volatility: Stocks that have demonstrated relatively lower price fluctuations.
The fund's objective is to combine the potential for higher returns from alpha-generating stocks with the stability offered by lower-volatility investments. This scheme may appeal to investors seeking a less volatile equity portfolio, preferring large and established companies, or looking for a passive alternative to actively managed large-cap funds with a long-term investment horizon.
Groww Nifty Smallcap 250 Momentum Quality 100 ETF
Groww Mutual Fund has introduced an Exchange-Traded Fund (ETF) designed to track the Nifty Smallcap 250 Momentum Quality 100 Index. This index selects 100 stocks from the Nifty Smallcap 250 universe based on:
- Momentum: Companies exhibiting strong price trends.
- Quality: Businesses with robust financial metrics and fundamentals.
This ETF provides passive exposure to the small-cap segment, filtering companies through momentum and quality factors. It may suit investors with a higher risk appetite who want exposure to India's small-cap growth story and believe these factors can outperform over time. However, investors should be aware of the inherent volatility and risks associated with small-cap investing.
Understanding Factor Investing
Factor investing is an investment strategy that selects stocks based on specific characteristics or "factors" rather than solely on market capitalization. Common factors include:
- Alpha: Potential for market outperformance.
- Low Volatility: Reduced price swings.
- Momentum: Stocks showing strong price trends.
- Quality: Strong balance sheets and profitability.
The goal of factor investing is to enhance risk-adjusted returns through a disciplined, rules-based approach.
Considerations for Investors
While factor-based funds are gaining global popularity, it's crucial to remember that no single factor outperforms consistently in every market environment. Momentum strategies can struggle during sharp market reversals, and low-volatility strategies might underperform during strong bull markets. Small-cap focused funds, like Groww's offering, can experience higher volatility and deeper drawdowns.
Factor cycles can span several years before delivering expected results, making these funds more suitable as long-term allocation tools rather than short-term performance bets. Investors should evaluate how these strategies fit within their existing portfolio and align with their individual risk appetite before investing.