Factor Investing 101: Value, Quality, Momentum & More

Most investors know about active investing (fund managers pick stocks) and passive investing (index funds track benchmarks). Factor investing sits in between — it uses data-driven rules to capture traits, or “factors,” that explain stock returns.

What is Factor Investing?

Factor investing means building a portfolio based on specific characteristics of companies. Instead of buying every stock in an index, the fund focuses on stocks that score well on chosen factors.

Common Factors Used in Mutual Funds

1. Value – Stocks that are priced lower compared to their fundamentals (earnings, book value).

2. Quality – Companies with strong balance sheets, stable earnings, and good governance.

3. Momentum – Stocks that have been rising in price tend to keep rising for a while.

4. Low Volatility – Stocks that fluctuate less, offering smoother returns.

5. Size – Exposure to small or mid-sized companies that often aims to deliver higher growth.

Why Factor Investing Works

• Evidence-based: Academic research shows these factors have historically delivered better risk-adjusted returns.

• Blends active & passive: Rule-based, but smarter than plain index investing.

• Diversification of style: Different factors perform at different times, reducing concentration risk.

Who Should Consider It?

• Investors who want rules-based, transparent strategies.

• Those looking for style diversification beyond just largecap or flexicap funds.

• Investors with a long-term horizon who want exposure to modern investing strategies.

Bottom Line

Factor investing is like adding flavors to your portfolio recipe. By combining value, quality, momentum, or low volatility, investors can capture proven drivers of long-term returns — in a disciplined, rule-based way.

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This document represents the views of Axis Asset Management Co. Ltd. and must not be taken as the basis for an investment decision. Neither Axis Mutual Fund, Axis Mutual Fund Trustee Limited nor Axis Asset Management Company Limited, its Directors or associates shall be liable for any damages including lost revenue or lost profits that may arise from the use of the information contained herein. No representation or warranty is made as to the accuracy, completeness or fairness of the information and opinions contained herein. The AMC reserves the right to make modifications and alterations to this statement as may be required from time to time.

Mutual fund investments are subject to market risks, read all scheme related documents carefully.