Smart Beta Funds
5paisa Research Team
Last Updated: 02 Jan, 2025 12:45 PM IST
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Content
- What are Smart Beta Funds?
- How Do Smart Beta Funds Work?
- Smart Beta Funds With Multiple Factors
- Performance Of Smart Beta Funds – Returns And Risk
- Smart Beta Funds – Merits And Concerns
- Should You Invest In Smart Beta Funds?
- Advantages of Smart Beta Funds
- Disadvantages of Smart Beta Funds
- Conclusion
Smart Beta Funds is an investment strategy that has gained popularity among investors in recent years. These funds are designed to provide an alternative to traditional market-cap weighted index funds by using a rules-based approach to selecting and weighting stocks. Unlike traditional passive index funds, smart beta funds aim to outperform the market by focusing on specific factors such as value, momentum, and quality.
In this article, we will explore what are smart beta funds, advantages and disadvantages of smart beta funds and provide insights on whether they are the right fit for your investment portfolio.
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Frequently Asked Questions
Factor investing and smart beta investing are similar, but they are not the same. Factor investing is a strategy that involves investing in securities that exhibit specific characteristics, such as value, growth, or momentum, to generate excess returns. Smart beta is a type of factor investing that utilises a rules-based approach to construct portfolios that aim to outperform traditional market-cap-weighted indices.
Smart beta funds typically have a higher expense ratio than traditional ETFs, but they are still much cheaper than actively managed funds.
Yes, smart beta funds are subject to tracking errors just like any other passively managed ETFs. Since they track fundamental indices, they may display tracking errors to the cap-weighted index.
Smart beta funds are considered liquid funds since they are part of the ETF market. However, their liquidity may be affected by their relative newness to the market and lower trading volumes.
Smart beta funds can be a good option for investors who prefer passive management of ETFs but seek higher returns without accepting the higher risk that comes with actively managed funds. However, as smart beta is still a relatively new concept in India, investors should exercise caution and perform extensive research and due diligence before investing.