Low-volatility and quality index funds: costs compared

The question

Low volatility and quality are the "defensive" factors: indices built to hold calmer or sturdier companies than the market. Our post on smart beta funds looked at what the factors earned. This one asks a narrower question. When several funds track the same defensive index, how do they differ on cost, size and how closely they follow it?

The figures cover four NSE indices and the 27 index funds, ETFs and fund-of-funds that track them with at least a year of NAVs. Returns are for Direct plans, Growth option, to Friday 9 October 2026. Expense ratios are AMFI's disclosures dated 30 September to 8 October 2026, and assets are AMFI's average for July to September 2026. Index returns are our estimate with dividends, built from NSE's daily price index and dividend yield.

What the four indices do

• Nifty100 Low Volatility 30 takes the 30 Nifty 100 stocks with the lowest standard deviation of daily returns over a year, weighted so the calmest carry the most. It is reviewed every quarter, and a member stays as long as it ranks in the top 60 (NSE factsheet).
• Nifty Alpha Low-Volatility 30 picks 30 from the Nifty 100 and Nifty Midcap 50, scoring half on a stock's one-year alpha against the market and half on low volatility. It is rebuilt twice a year, with a 5% cap per stock.
• NIFTY100 Quality 30 and NIFTY200 Quality 30 score companies on five years of return on equity, debt to equity and the steadiness of earnings growth. Weights come from the score and the square root of market value, capped at 5%, and are reset twice a year (NSE factsheet).

Low volatility: nine trackers, one index

Kotak's ETF is both the cheapest and the closest: 0.25% a year, a lag of 0.27 points over one year and 0.30 a year over three. The largest money sits in ICICI Prudential's ETF and its fund-of-funds wrapper. The FoF charges 0.11% on top of the ETF's own 0.52%, and it trailed the most, by 1.04 points.

Tracking error, the day-to-day wobble around the index, ran from 0.23% to 0.28% a year for every index fund and ETF here. They all follow the index closely. What separates them is the steady drip of costs.

Alpha low-volatility

The ordering follows the fee almost exactly. ICICI Prudential's FoF on its ETF (₹798 crore) returned −7.03%, and Bandhan's index fund, with ₹9 crore, −6.73%. A Kotak index fund launched in June 2026 charges 1.00%.

Quality

Five smaller NIFTY200 Quality 30 trackers, from ICICI Prudential, Bandhan, Aditya Birla Sun Life, Kotak and SBI, with ₹3 crore to ₹81 crore each, lagged by 0.51 to 0.83 points.

Quality is where the fee does not explain everything. HDFC's ETF charges 0.30% and still lagged by 0.78 points, about as much as Edelweiss's index fund at 0.59%. Part of that may be our index estimate, which spreads the dividend yield evenly; quality indices yield more than most, so any error there is larger. Tracking error was 0.32% to 0.36% for all of them.

What the factors did against their parents

Low volatility beat the Nifty 100 on all three windows, by 1.21 points a year over three years, more than any tracker's three-year lag. The NIFTY200 Quality 30 trailed its parent on every window, by 2.21 points a year over three.

"Low volatility" also means smaller swings, not smaller falls. Over three years the low-volatility trackers had volatility of about 11.7% a year, against 13.3% for UTI's Nifty 50 index fund. Their worst fall was 18.1% to 18.2%, against 15.5% for the Nifty 50 fund, a pattern our post on low-volatility indices traces. The alpha low-volatility trackers fell as much as 25%.

What this does not tell you

The index figures are estimates, so treat the lags as approximate. Comparisons between funds on the same index are firmer, because any error in the estimate is shared.

A FoF's lag includes two layers of cost, which is why the fund-of-funds wrappers trail.

ETFs trade on the exchange, and the price you pay can differ from the NAV, a cost these returns leave out.

Each fund's page measures tracking error against a broad benchmark, the Nifty 100 TRI or Nifty 500 TRI rather than its factor index, so it reads 5% to 7% where ours reads under 0.4%.

None of this is a recommendation to buy or sell any fund. The factor investing guide explains what these tilts are meant to do, and the index fund page lists every tracker.