What is a multi factor index?

1. In finance and investment, theory factors are variables that drive equity returns.

2. A multi factor-based index is one that is created by stock selection using two or more factors such as volatility, momentum, alpha, value etc.

3. The weights of the stocks in index are based on these factors for example a high alpha stock will have a higher weight and a low volatility stock will have a lower weight.


4. The idea is to use a combination of two or more factors to diversify risk exposures and reduce volatility.

5. NIFTY Alpha Low-Volatility 30, NIFTY Quality Low-Volatility 30, NIFTY Alpha Quality Low-Volatility 30 and NIFTY Alpha Quality Value Low-Volatility 30 are examples of Multi Factor Indices.

(Content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.)