What "smart beta" means
An ordinary index fund buys the stocks in an index in proportion to their market value. A smart beta or factor fund also follows an index, but one built on a different rule: pick the 30 or 50 stocks with the strongest recent price trend (momentum), the most stable profits (quality), the calmest prices (low volatility), the cheapest valuations (value), or hold every stock in equal weight.
The rules are published and applied mechanically, so these are still passive funds. The idea, backed by decades of academic research, is that some of these traits have historically earned more than the market over long periods, though never in every year. The factor investing guide explains the theory. This post looks at what the Indian funds have actually delivered and what they charge.
How many there are and what they cost
We grouped the Direct Growth plans of index funds by the factor in their name. Expense ratios are the AMCs' disclosures dated August and September 2026; returns are computed from daily NAVs to 1 October 2026.
| Factor | Funds | Median Direct TER |
|---|---|---|
| Nifty 50 (plain, for comparison) | 25 | 0.25% |
| Equal weight | 18 | 0.43% |
| Quality | 16 | 0.46% |
| Low volatility | 10 | 0.53% |
| Value | 8 | 0.57% |
| Alpha | 4 | 0.77% |
| Momentum | 23 | 0.82% |
The median momentum fund charges more than three times what the median Nifty 50 fund does. That is still well below an active equity fund's Direct plan, but the premium has to be earned back every year before the factor adds anything.
Most of these funds are new. Of the 79 factor funds in the table (excluding Nifty 50), only 27 have three years of NAVs, and just 6 have five. Momentum is the most crowded factor, with 23 funds, but only 7 of them are three years old.
What they returned
| Factor | 1-year median | Funds with 3 years | 3-year median (per year) | Median worst fall in 3 years |
|---|---|---|---|---|
| Nifty 50 | −8.90% | 17 | 5.50% | −15.5% |
| Equal weight | −3.58% | 9 | 9.60% | −18.0% |
| Quality | −4.91% | 4 | 7.00% | −21.4% |
| Low volatility | −6.53% | 4 | 6.82% | −18.2% |
| Value | 4.08% | 3 | 17.66% | −21.9% |
| Momentum | 1.16% | 7 | 8.27% | −31.6% |
| Alpha | 5.01% | 0 | — | — |
Two things stand out.
Over three years, every factor group beat the plain Nifty 50 funds on the median. That includes a period when large-cap stocks did poorly: the Nifty 50 funds lost a median 8.9% in the year to 1 October 2026. Our post on factor indices in 2026 follows the underlying indices through this year's fall.
The extra return came with extra pain. Momentum funds' median worst fall over three years was 31.6%, about twice the Nifty 50 funds' 15.5%. A momentum index holds whatever has been rising, and when the trend breaks it can hold a lot of it at the top. Low-volatility funds, built to fall less, did fall less than momentum, but their median worst fall was still deeper than the Nifty 50 funds'.
The samples are small. Three value funds and four quality funds are not a verdict on value or quality investing, and three years is a short window for a factor. Factors are known to go through long spells, sometimes five years or more, of trailing the market. The academic evidence that they pay off is about decades, not about the three years any of these Indian funds have existed.
What to check before buying one
1. The rule, not the label. "Momentum 30" and "Momentum 50" on different parent indices hold different stocks. Read the index methodology on the index provider's site: how stocks are scored, how often the index rebalances, and caps on single stocks or sectors.
2. Rebalancing and turnover. Momentum indices rebalance often and replace many stocks each time. That trading costs money inside the fund on top of the TER, and it shows up as tracking error against the index.
3. How it fits with what you own. A momentum or value fund is a tilt. Held as a modest satellite next to a broad index fund, it can add diversification. Held as the whole portfolio, it ties your outcome to one factor having a good decade. The core and satellite approach is one way to size it.
4. Whether you can sit through the bad years. A factor that underperforms for three years is behaving normally. Investors who sell after the bad spell and buy after the good one capture the volatility without the premium. If you would not hold a fund that trails the Nifty 50 for several years, a factor fund is likely to cost you money.
Worth the hype?
The funds have done what factor funds are supposed to do: over the last three years most beat a plain Nifty 50 fund, and momentum, the most crowded factor, also had by far the deepest fall. They charge roughly 1.7 to 3.3 times a Nifty 50 index fund's fee, and most have too short a record to judge. They are a reasonable tool for a patient investor who understands the rule they are buying. They are not a cheaper way to get active-fund returns without the risk. You can compare individual funds' costs and records in the screener or browse the index fund category.
This post is for education only and is not investment advice or a recommendation to buy or sell any fund. Past returns do not predict future returns.
Frequently asked questions
What is a smart beta fund?
A smart beta, or factor, fund is an index fund that tracks a rule-based index which picks or weights stocks by a trait such as momentum, quality, low volatility, value or equal weighting, instead of by market capitalisation. The rules are fixed and public, so the fund is passive, but its portfolio differs from the Nifty 50 or Nifty 500.
Do smart beta funds cost more than ordinary index funds?
Yes. On expense ratios disclosed for August and September 2026, the median Direct plan of a Nifty 50 index fund charged 0.25% a year. Median factor fund charges ranged from 0.43% (equal weight) to 0.82% (momentum).
Have momentum funds beaten the Nifty 50?
Over the three years to 1 October 2026, the seven momentum index funds with a three-year record returned a median 8.27% a year, against 5.50% for Nifty 50 index funds. But their median worst fall in that period was 31.6%, against 15.5% for Nifty 50 funds.
This is commentary on published data, not investment advice. WealthTicker is not a SEBI-registered adviser or distributor. Figures are as of the dates stated and can be revised by their source.
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