In recent years, the Indian fund sector has introduced a number of Smart Beta options, either in the form of ETFs or index funds based on indices created by the NSE. These products have either been offered as a single element, such as low volatility, or as a pair, such as alpha and low volatility.
The funds known as "Smart Beta Funds" use a different weighting strategy than the conventional market-cap weighting. Simply said, smart beta funds do not follow traditional passive indexes like the Sensex or the Nifty 50.
Instead, the world of factor investing encompasses Smart Beta Funds. These funds also track variables like value, momentum, quality, low risk, etc., which may be utilized singly or in combination to put together a special stock selection.
There are currently seven funds in India which follow smart beta strategies. They are as follows-
- Nippon India NIFTY 50 Value 20 Index Fund
- Edelweiss NIFTY 100 Quality 30 Index Fund
- UTI NIFTY 200 Momentum 30 Index Fund
- ICICI Prudential NIFTY Low Vol 30 ETF
- ICICI Prudential Alpha Low Vol 30 ETF
- ICICI Prudential NV20 ETF
- Kotak NV20 ETF
In addition to this, HDFC Asset Management Company Ltd recently announced the introduction of three smart beta ETFs, namely the Nifty100 Quality 30 ETF, Nifty50 Value 20 ETF, and Nifty Growth Sectors 15 ETF, to broaden the scope of its HDFC MF Index Solutions product line.
Over the long term, smart-beta strategies outperform the conventional market-cap weighted type of investing by reducing sensitivity to market volatility. As the underlying stock selection is based on a factor or a mix of variables, it helps investors diversify their portfolios and minimize correlation in the portfolio. Given that it includes elements of both active management and passive management, it shows to be quite advantageous.
Smart beta funds are a good alternative to market-cap index funds. These funds offer returns above the benchmark but are less expensive than actively managed funds. While the Smart-beta method of investing has many benefits, some Smart-beta techniques may also lose their effectiveness over time, just like any other method of investment.
