Compatibility beats popularity

Summary: Every factor has rewarded investors over the long run. None has done so in a straight line. The question isn't which factor will perform best—it's which one you'll actually stay invested in when it inevitably doesn't.

Summary: Every factor has rewarded investors over the long run. None has done so in a straight line. The question isn't which factor will perform best—it's which one you'll actually stay invested in when it inevitably doesn't. Most investors pick factor funds the way they pick stocks: by looking at what worked last year. This is a reliable method for buying yesterday’s winner and inheriting tomorrow’s disappointment. Factor funds come in two broad forms. Passive smart-beta funds track factor-based indices like the Nifty 500 Momentum 50 index and have the potential to outperform traditional market-cap weighted benchmarks like the Nifty 500. Active smart-beta funds go further, aiming to outperform passive factor-based benchmarks by applying the same factors more dynamically. The mistake lies not in choosing between them, but in choosing based on recent performance rather than personal fit. Investors tend to make two errors: chasing what just worked, and abandoning what has temporarily lagged. The antidote to both is self-awareness, not a sharper eye for recent performance. Know your type before picking a factor Not every investor is the same. Knowing your type is the first step to choosi