Factor funds can stumble too. This year proves it

Summary: After a red-hot run in 2023–24, factor funds have stumbled. This story breaks down why they are underperforming, what’s cyclical versus structural and how investors should position them now. Once the flavour of the season in the Indian mutual fund industry, factor funds—built around styles such as momentum, quality and alpha—are now facing turbulence. These funds, offered both as active products and passive vehicles like ETFs and index funds, had gained popularity by promising a scientific, rules-based alternative to plain-vanilla index investing. But market cycles don’t stay constant. After two years of dominance, these themes are losing steam. From hot streak to hard landing The numbers highlight the turnaround. In 2023, the Nifty 500 TRI delivered a solid 27 per cent. But the Nifty 500 Momentum 50 TRI stole the show, soaring nearly 48 per cent. Through 2023–24, factor indices such as th