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Does it make sense to invest in smart beta funds?

Does it make sense to invest in smart beta funds?
by 5paisa Research Team 03/12/2021

Smart beta funds are trying to make its space and gain investors’ attention. Read on to understand whether at all it makes sense to invest in them.

Though, smart beta funds are not new to us as the first smart beta fund was launched in June 2015 in the form of Exchange Traded Fund (ETF). This was launched by Nippon India (erstwhile Reliance Nippon) and it tracks the Nifty 50 Value Total Returns Index (TRI). This was followed by Kotak that launched its Kotak NV 20 ETF in December 2015 on similar lines with Nippon India ETF NV 20.

What are smart beta funds?

Smart beta funds are those that adopt a strategy based on factors such as value, quality, momentum, low volatility, high beta, etc. These funds usually follow a factor-based investing wherein they either use single factor or multi-factor to build their portfolio.

Here the question arises that if the smart beta funds are factor-based, then how are they different from quant funds? To answer, most of the quant funds have adopted factor-based investing wherein they usually use multiple factors to build a portfolio. Moreover, quant funds do add their own rules and also use AI and machine learning capabilities to build and rebalance their portfolio. However, the smart beta funds ideally can be either a single factor or multi factor-based portfolio without any additional rules. So, there is a thin line between quant funds and smart beta funds.

Here is the list of the top smart beta funds that are currently available to invest in. 

Funds 

AUM 

(In Rs Cr) 

Expense Ratio (%) 

Benchmark Index 

Trailing Returns (%) 

3 Months 

6 Months 

1 Year 

3 Years 

5 Years 

Nippon India ETF NV20 

41 

0.36 

Nifty 50 Value 20 Index - TRI 

0.24 

12.87 

40.88 

21.67 

21.53 

Kotak NV 20 ETF 

29 

0.14 

Nifty 50 Value 20 Index - TRI 

0.29 

13.05 

41.32 

21.31 

21.35 

Edelweiss ETF - Nifty 100 Quality 30 

11 

0.27 

Nifty 100 Quality 30 Index - TRI 

11.00 

21.18 

45.69 

19.45 

14.15 

ICICI Prudential NV20 ETF 

25 

0.12 

Nifty 50 Value 20 Index - TRI 

0.30 

13.06 

41.36 

21.36 

21.13 

ICICI Prudential Nifty Low Vol 30 ETF 

675 

0.42 

NIFTY 100 Low Volatility 30 Index - TRI 

-1.41 

8.38 

28.62 

16.99 

SBI-ETF Quality 

29 

0.50 

Nifty 200 Quality 30 Index - TRI 

-0.54 

12.36 

30.93 

ICICI Prudential Alpha Low Vol 30 ETF 

129 

0.41 

NIFTY Alpha Low-Volatility 30 - TRI 

-2.91 

11.47 

31.64 

Nippon India Nifty 50 Value 20 Index Fund 

59 

0.80 

Nifty 50 Value 20 Index - TRI 

0.12 

12.59 

UTI Nifty200 Momentum 30 Index Fund 

714 

0.90 

Nifty200 Momentum 30 - TRI 

4.20 

17.53 

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