NFO Alert: Kotak and Groww launch new factor-based funds. Should investors consider them?

Indian mutual fund investors have two new factor-based passive investment options to choose from, with Kotak Mahindra Mutual Fund and Groww Mutual Fund launching new fund offers (NFOs) that aim to capitalize on factors such as alpha, low volatility, momentum and quality.

While both products follow passive, rules-based strategies, they target different segments of the market and carry different risk-return profiles. The NFOs are open for subscription from May 29 to June 12, 2026.

Here's what investors need to know before considering these new launches.

1. Kotak Nifty Alpha Low-Volatility 30 Index Fund

Kotak Mahindra Asset Management Company has launched an open-ended index fund that will track the Nifty Alpha Low-Volatility 30 Index.

The index comprises 30 stocks selected using a combination of two factors:

Alpha: Stocks that have historically outperformed the broader market.
Low Volatility: Stocks that have shown relatively lower price fluctuations.

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The idea is to combine the return-generating potential of alpha investing with the stability offered by lower-volatility stocks.

2. Groww Nifty Smallcap 250 Momentum Quality 100 ETF

Groww Mutual Fund has launched an exchange-traded fund (ETF) tracking the Nifty Smallcap 250 Momentum Quality 100 Index.

The index selects 100 stocks from the Nifty Smallcap 250 universe based on:

Momentum: Companies showing stronger price trends.
Quality: Businesses with stronger financial metrics and fundamentals.

The ETF offers passive exposure to the small-cap segment while filtering companies through these two factors.

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What is factor investing?

Factor investing is a strategy that selects stocks based on specific characteristics rather than simply market capitalization.

Some of the most popular factors include:

Factor    What It Looks For
Alpha    Potential market outperformance
Low Volatility    Lower price swings
Momentum    Stocks showing strong price trends
Quality    Strong balance sheets and profitability

The objective is to improve risk-adjusted returns through a disciplined, rules-based approach.

Which fund is suitable for which investor?

Kotak Nifty Alpha Low-Volatility 30 Index Fund

This scheme may appeal to investors who:

Want a relatively less volatile equity portfolio
Prefer large and established companies
Are looking for a passive alternative to actively managed large-cap funds
Have a long-term investment horizon

Because the strategy combines alpha and low-volatility factors, it may be suitable for investors seeking equity exposure with potentially lower downside volatility.

Groww Nifty Smallcap 250 Momentum Quality 100 ETF

This ETF may suit investors who:

Have a higher risk appetite
Want exposure to India's small-cap growth story
Believe momentum and quality factors can outperform over time
Understand the risks associated with small-cap investing

Small-cap stocks can generate strong returns during favorable market cycles but are also more volatile and vulnerable during market corrections.

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What should investors watch out for?

While factor-based funds have gained popularity globally, investors should remember that no factor outperforms in every market environment.

Momentum strategies can struggle during sharp market reversals.
Low-volatility strategies may underperform during strong bull markets.
Small-cap-focused funds can witness higher volatility and deeper drawdowns.
Factor cycles can last several years before delivering expected results.

Therefore, these funds should ideally be viewed as long-term allocation tools rather than short-term performance bets.

Note for investors

Both NFOs reflect the growing trend of factor-based passive investing in India.

The Kotak Nifty Alpha Low-Volatility 30 Index Fund focuses on balancing return potential with stability, while the Groww Nifty Smallcap 250 Momentum Quality 100 ETF targets higher-growth opportunities within the small-cap universe.

For investors, the choice depends largely on risk appetite. Conservative equity investors may find Kotak's low-volatility strategy more appealing, whereas aggressive investors seeking exposure to emerging small-cap companies may prefer Groww's momentum-quality approach.

As with any NFO, experts recommend evaluating how the strategy fits within an existing portfolio rather than investing solely because it is a new launch.