Biases like overconfidence, loss aversion, and anchoring make it difficult for managers to assess market changes objectively and adjust factor exposures accordingly.

Factor funds lie somewhere between discretionary active and rule-based passive funds. These are also called ‘smart beta’ funds. We like to think of them as “Active Beta” or Rules-Based Active Funds.

Over the last one year the Indian stock markets have displayed strength and resilience by outperforming all the major global equity markets. Concurrently, factor investing has been thrust into the limelight and is gaining traction among investors. In this special feature, Armaan Madhani helps us delve deep to understand factor investing and explore its history, pros, cons and historical performance in the Indian as well as global capital markets