Factor investing is back in favour. But for how long?

This is a Mint Premium article gifted to you.Subscribe to enjoy similar stories.

A wave of new fund launches suggests factor investing is back in vogue.

The trend began with Franklin Templeton's Franklin India Multi Factor Fund in November 2025, followed by Motilal Oswal's Multi Factor Passive Fund of Funds in February 2026, Groww's Nifty Smallcap 250 Momentum Quality 100 ETF in May 2026, and Kotak's Nifty Alpha Low Volatility 30 Index Fund in June 2026.

As fund houses double down on the theme, the key question for investors is whether factor investing is a passing fad or a strategy that can deliver superior risk-adjusted returns over the long run.

“Factor investing has a proven long-term track record of outperforming the market," said Sukanya Ghosh, fund manager, SBI Mutual Fund. But she added that picking the right factor and the right combination of factors based on the investor's risk appetite and the prevailing market regime is essential.

She believes that factor rotation remains inherently cyclical, and diversification across factors reduces drawdown.

Silver ETFs have led the pack so far this year. The 360 ONE Silver ETF has returned 5.6%, followed by the Zerodha Silver ETF with nearly 5% gains. The ICICI Prudential Nifty200 Value 30 ETF has returned 3.7%, while the ICICI Prudential Nifty 200 Value 30 Index Fund is up 3.5% on a year-to-date basis, according to investment research company Morningstar.

Factors such as value, growth and quality represent distinct investment styles, allowing investors to choose strategies that align with their risk appetite and financial goals. Factor-based portfolios are rules-based and transparent, making it easier for investors to understand where their money is invested, particularly during periods of market volatility.

Different factors tend to outperform at different stages of the market cycle. In 2026, the value factor has delivered stronger returns, according to experts.

The Nifty500 Value 50 TRI has gained 7.3% year-to-date, compared with a 4.8% decline in the Nifty 500 TRI, an outperformance of 12.1 percentage points, which indicates that investors have preferred relatively inexpensive stocks with stronger valuation support, noted Mahavir Kaswa, head of passive research at Axis Mutual Fund.

Bharat Lahoti, president and co-head, factor investing, Edelweiss Mutual Fund, explained that factor performance has improved meaningfully in 2026 versus 2025, with several factors outperforming the broader market despite volatility.

Value continues to perform, while momentum and growth have rebounded on improving earnings. Quality, however, has lagged due to moderate earnings growth and expensive valuations, he said.

The outperformance of value has been largely driven by its underlying sectoral exposure, as value-oriented portfolios in India tend to have reasonable allocations to sectors such as oil and gas, metals, and power, which have been among the strongest performers recently, explained Siddharth Srivastava, head-ETF product and fund manager, Mirae Asset Mutual Fund.

Relatively, even the alpha factor has delivered reasonable performance, as market trends in certain segments have been persistent recently, leading to outperformance over the broader benchmark, he said.

On the other hand, factors such as low volatility and quality have struggled because they tend to have higher exposure to sectors such as IT and FMCG, both of which have delivered relatively muted returns in recent periods, he added.

Experts believe factor investing will remain relevant through the rest of 2026 and could gain further momentum as the market stabilizes.

“Just as sectors move in and out of favour, factors also experience periods of outperformance and underperformance,” said Siddharth Srivastava, head-ETF product and fund manager, Mirae Asset Mutual Fund.

If market conditions become more directional, supported by earnings growth, factors such as momentum and alpha could potentially regain leadership, he added.

“In the near term, value may continue to lead in a risk-off environment, while momentum and growth could gain traction if volatility eases and earnings recovery broadens,” Lahoti said.

He said over the long term, factor strategies can potentially deliver 2-4% alpha over traditional benchmarks, with better risk-adjusted returns across market cycles. However, single-factor performance can be volatile and regime-dependent. For medium-risk investors, multi-factor strategies are generally more suitable, as they offer a more balanced way to capture upside while managing volatility.

Meanwhile, Kaswa of Axis MF, pointed out that factor-based index funds and ETFs are still a relatively new category in the country, but investor interest has picked up meaningfully over the past few years.

“The category had an AUM (assets under management) of under ₹7,000 crore across about 50 schemes in 2023. By April-end 2026, this had grown to over ₹50,000 crore across roughly 125 schemes."

Dipti has spent nearly a decade happily knee-deep in the fast-moving, occasionally nerve-wracking, and always fascinating world of stock markets, tracking everything from sharp sell-offs to surprise rallies, and the narratives that drive them. She began her journalism journey at Informist, sharpened her market instincts at CNBC Digital and Moneycontrol, and is now charting new territory with Mint. Here, she is exploring new ground, bringing together sharp analysis, on-ground insights, and a keen eye for what really moves markets.<br><br>Before stepping into journalism, Dipti studied law and worked with a solicitor firm for close to three years, an experience that gave her a strong foundation in analytical thinking, contracts, and corporate structures. But the pull of markets and storytelling proved stronger, prompting a switch from law to journalism.<br><br>She writes about stocks and investments, but that’s only part of the story. Dipti also teams up with market experts to turn complex trends into sharp, easy-to-understand videos, occasionally peeks at deals and acquisitions, and regularly picks the brains of industry leaders. Somewhere between earnings calls, market swings, and boardroom chatter, she’s always looking for the next story that explains what’s really moving the markets.

Catch all the Business News , Market News , Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.