Factor exposure inside Indian funds
In this chapter: Size, value, quality, momentum, low-vol · Reading a fund's factor signature from holdings data
Equity returns can be decomposed into market beta (the index move) and factor premia (size, value, quality, momentum, low-volatility). Most active funds have implicit factor tilts — knowing which factors the fund is exposed to explains a large part of its performance vs benchmark.
Common factor signatures in Indian funds: Quality bias (tilt to high-ROE, low-debt companies — typical of consumer/IT-heavy funds), Value bias (tilt to low PE/PB stocks — contrarian managers), Momentum bias (tilt to recent winners — quant-driven funds), Small-cap tilt within multi-cap mandates, Low-vol tilt (consumer staples-heavy). Factor returns rotate: quality led 2014-19, value led 2003-07 and partially 2022-23. Knowing which factors a fund tilts to lets you predict relative performance in different regimes.
A nuanced insight: factor tilts are sometimes rewarded, sometimes punished, but the manager doesn't change the tilt. So performance evaluation must be over a full cycle. A "value" fund that underperforms during a quality regime isn't necessarily failing — it's being style-consistent. Factor-attribution tools (Morningstar, Value Research) decompose returns; sophisticated allocators use these to confirm the manager isn't closet-indexing or style-drifting.