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Are Factor Index Funds the Next Big Thing? Here’s Why You Should Pay Attention.
What is the fuss?
Index funds have been seen to become dominant in a mature economic market, such as the US.
India, too, is on a similar path. However, most actively managed mutual funds have been beating Index Funds in India (read my medium article here).
However, a new type of Index Fund, Factor-based Index Funds, is emerging in India. These funds combine certain “factors” to select stocks constituting an index.
The historical returns of these Factor Index funds are attractive. They often beat any actively managed fund and have given as high as 25% annual CAGR returns in the last ten years.
This new category of index funds might accelerate Index Fund adoption in India. After all, who would say no to higher returns at lower costs? The early signs are visible, with many AMCs (Asset Management Companies) launching mutual fund schemes around these factor-based indices.
In this article, I shed light on this category of indices, share reasons why you must consider them to fast-track your financial goals, and lastly, reveal my favourite factor index.
Let’s get started.