Smart beta funds lose traction on performance slump, shows data

Smart beta funds, which had seen a sharp rise in investor interest amid a slew of fund launches in 2023-24, have witnessed a decline in traction over the past year, with the formula-based schemes struggling to perform in a volatile market environment.

According to an analysis by DSP Mutual Fund (MF), the flows into smart beta funds, which has risen in recent years to about 

9 per cent of the total equity MF flows in February 2025, is now down to less than 1 per cent. 

These mutual fund (MF) schemes, often described as a middle ground between active and passive investing, track indices constructed using specific factors such as value, momentum, quality, low volatility, or size — rather than simply relying on market capitalisation like traditional index funds. 

  The decline in flows coincide with a slump in performance of such schemes in comparison to other passive equity schemes.

In September 2024, eight of the top 20 Nifty indices in terms of one-year performance were smart beta indices. 

These included Nifty200 Value 30, Nifty500 Value 50, Nifty100 Alpha30, Nifty Alpha 50, Nifty200 Alpha 30, Nifty500 Momentum 50, Nifty 200 Momentum 30 and Nifty Alpha Quality Value Low-Volatility 30. 

At the end of September 2025, only one smart beta fund featured in the top 10 list — Nifty500 Low Volatility 50. In 2024, several schemes were launched that track these indices.