Beyond broad indices

Every index carries a judgement about what deserves weight. In the Nifty 500, market capitalisation supplies most of that judgement. A company that becomes larger commands more capital, irrespective of whether the rise reflects stronger fundamentals or simply a richer market price. The index provides broad coverage while leaving a separate question unresolved: which characteristics deserve more capital? A broad universe is only the starting point Factor rules begin at that question. From the same Nifty 500 universe, a different rulebook can produce a portfolio whose behaviour diverges sharply from the parent index. A momentum rule may favour persistent relative strength, whereas quality rules can remove financially weaker companies. Value changes the entry criterion by asking whether the price leaves enough room for the fundamentals. Low-volatility rules pursue a different risk profile. The table ‘Factor rules changed the long-term return profile’ resists a league-table reading. Momentum rewarded investors more at the median while dema