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Frequently Asked Questions (FAQs)

Factor investing refers to the use of investment factors like Quality, Value, Low Volatility and Momentum  to make decisions related to stock selection and asset allocation. Factor investing is a purely quantitative approach that focuses on creating rules to get exposure to these factors. Rule-based factor investing aims to outperform the benchmark.

Factor Investing is synonymous with Quantitative Investing (i.e. Quantitative/Quant Funds) because factor investing relies on analysing historical data (market and fundamental) and makes decisions purely based on quantitative rules. Factor funds are known by many names such as rule-based active funds, quantitative funds, quants, smart beta and smart alpha funds among others.

It refers to NJ Asset Management’s investment philosophy of Rule-based Active Investing, which is a strategy that combines the best of traditional active and passive investing methodologies. Rule-based Active Investing is also known as Factor Investing.

Factor funds, which are also known as rule-based active funds, are not a form of passive investing. Such funds combine the benefits of traditional (discretionary) active investing along with the disciplined inherent in passive investing strategies. Just like traditional active funds, and as opposed to passive index funds, rule-based funds aim to outperform the index (i.e. beat the market).

Rule-based active funds do have fund managers, however their role differs from that in traditional active management. Instead of forecasting  which stocks, sectors, and/or industries will outperform in the future, rule-based active fund managers research historical (market and fundamental) data and trends to create rules that help them get the desired exposure to investment factors of their choice. This helps in eliminating human biases in selecting specific stocks.

 

Benefits of Rule-based Active Investing:

  • Data Driven
  • Time-tested
  • Eliminates Human Biases
  • True-to-Label
  • Combines Active and Passive Investing Styles

NJ Asset Management employs rule-based active investing by using 4 main investment factors i.e. Quality, Value, Low Volatility, and Momentum for its Mutual Fund portfolios. While the Low Volatility factor tends to offer low volatility (and higher risk-adjusted returns), the other 3 factors may not necessarily offer low risk. However, by diversifying across 4 different factors, NJ Asset Management’s rule-based active investing endeavours to reduce the overall risk of the portfolio and thus enhance its risk-adjusted returns.

Using a rule-based approach based on investment factors is beneficial to investors since these factors are considered as building blocks of an investment portfolio, just like fats, proteins, carbohydrates and vitamins are essential elements in an individual’s diet.

 

Overall Benefits of Rule-based Active Investing:

  • Data Driven
  • Time-tested
  • Eliminates Human Biases
  • True-to-Label
  • Combines Active and Passive Investing Styles

NJ Mutual Fund believes that in a highly fast-paced, dynamic and technologically driven world, leveraging advanced analytics and quantitative rules based on vast data sets, rather than relying purely on a human’s gut feeling, can help build optimal portfolios that can generate efficient risk-adjusted returns. NJ Mutual Fund aims to eliminate the human bias in its investment decisions.

No, NJ Asset Management only offers pure rule-based active investment (factor based) products across its Mutual Funds and PMS segments.

Over the last 10-15 years, the Momentum Factor has been the most dominant in the Indian market. However, it is pertinent to note that the dominance of factors keeps changing with evolving market conditions. The Value Factor, which has not performed well over the last 10 years, has witnessed the most stellar performance in the last 1 year. Due to this cyclical and evolving nature of investment factors, NJ Mutual Fund offers a multi-factor portfolio (investing in 4 different factors) to their mutual fund investors to diversify the impact of individual factor performance.

Investment factors are key drivers of risk and return of assets based on which investment professionals take informed investment decisions. Commonly accepted investment factors for stocks are: Quality, Value, Low Volatility, and Momentum.

Click here to know more about investment factors and their evolution: https://www.njfactorbook.com/what-are-factors

The Quality factor seeks to measure the financial and accounting quality of companies using parameters like . profitability, earnings volatility and growth, leverage, assets and investments, accruals and cash flows among others.

Click here to know more about the Quality factor:  https://www.njfactorbook.com/quality-factor

The Value factor gauges the ‘market value’ of stocks compared to their fundamental business value or intrinsic value. It aims to find and invest in stocks whose current market prices are below (at a discount to) their fundamental &  intrinsic values.

Click here to know more about the Value factor:  https://www.njfactorbook.com/value-factor

The Low Volatility factor measures the volatility of the stocks’ returns using  statistical metrics. It helps attain exposure to stocks whose returns exhibit low volatility and thus aims to offer higher risk-adjusted returns.

Click here to know more about the Low Volatility factor:  https://www.njfactorbook.com/low-volatility-factor

The Momentum factor measures a stock’s price momentum i.e. how the stock has performed in the recent past (generally the past 6, 9, and/or 12 months). It invests in stocks that have exhibited strong returns (strong momentum) over the chosen time period.

Click here to know more about the Momentum factor: https://www.njfactorbook.com/momentum-factor

  • NJ Mutual Fund is a pure rule-based active fund house, taking its investment decisions based on investment factors, advanced data analytics and quantitative rules. NJ Mutual Fund believes that it is the AMC’s responsibility to spread awareness regarding the idea and merits of rule-based factor investing in making informed investment decisions and take the initiative to propagate this philosophy of investing in the Indian market. We believe that it is important that  investors understand the value and significance of this investment philosophy before investing in any of our products.

    You can download your free e-book version here: www.njfactorbook.com

  • NJ’s Factor Book is a guide to the relatively new and emerging world of factor investing, which is a confluence of technological advancements (data analytics, machine learning, and artificial intelligence) and established investment principles. NJ’s Factor Book takes you through the many facets of factor investing, ranging from the evolution of factor investing and the different types of investment factors to the several opportunities for this investment approach in the dynamic Indian capital markets.

    One may expect to find informative and well-researched answers to questions such as “Has the Momentum Factor worked in India and elsewhere?”, “What are multi-factor funds?”, “Where is factor investing headed?” among others.

    To know more, please visit www.njfactorbook.com

NJ’s Factor Book is part of the awareness and education initiative regarding NJ’s investment philosophy and processes. Therefore, NJ’s Factor Book is available to everyone for free.

Please visit www.njfactorbook.com  to download your free e-book.

Factor investing refers to the use of investment factors like Quality, Value, Low Volatility and Momentum  to make decisions related to stock selection and asset allocation. Factor investing is a purely quantitative approach that focuses on creating rules to get exposure to these factors. Rule-based factor investing aims to outperform the benchmark.

Factor Investing is synonymous with Quantitative Investing (i.e. Quantitative/Quant Funds) because factor investing relies on analysing historical data (market and fundamental) and makes decisions purely based on quantitative rules. Factor funds are known by many names such as rule-based active funds, quantitative funds, quants, smart beta and smart alpha funds among others.

NJ Mutual Fund considers 4 style factors for its stock selection, namely Quality, Value, Low Volatility, and Momentum

Confused what style factors are? Click here to know more: https://www.njfactorbook.com/what-are-factors/38-factor-categories-macroeconomic-vs-style

As of May 2022, NJ Asset Management offers investors its NJ Balanced Advantage Fund. Both Growth and IDCW (Dividend) Options are available for NJ Balanced Advantage Fund. The minimum investment amount for both SIPs and lump sum investments is ?500.

No, NJ Asset Management only offers pure rule-based active mutual fund products.

Unlike the majority of BAFs that are available to investors, NJ BAF is unique in terms of its investment process, both stock selection (for the equity component) and debt-equity asset allocation. NJ BAF is a purely rule-based active mutual fund that uses various investment factors for its investment decisions. NJ BAF uses 4 style factors, namely Value, Quality, Momentum, and Low Volatility, for stock selection, while it uses a mix of macroeconomic factors such as Equity Risk Premium, Interest Rates, and Money Supply (Macroeconomic Liquidity) for dynamically changing its asset allocation between the debt and equity components.

This pure rule-based active investment process gives investors a real diversification opportunity of spreading their investment portfolio between traditional BAFs and a pure rule-based active NJ BAF.

For more information about style vs macroeconomic factors, please visit https://www.njfactorbook.com/what-are-factors/38-factor-categories-macroeconomic-vs-style

NJ Balanced Advantage Fund

An open-ended dynamic asset allocation fund

The riskometer is based on the portfolio of April 30, 2022 and is subject to periodic review and change, log onto www.njmutualfund.com  for updates.

Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.

Rule-based Active Investing, also known as factor investing, has become quite widely accepted in the western markets because of its systematic and disciplined  approach to achieving better risk-adjusted returns. NJ believes that advances in Big Data, analytics and investment research presage a bright future for such an approach in India in the future. However, just like any other investment approach, there is no guarantee of future returns.

As of May 2022, NJ Asset Management offers 10 PMS investment approaches across Equity stocks, Equity Mutual Funds, ETFs, Arbitrage and debt funds. It also offers dynamic asset allocation alternatives within these asset categories.

 

Equity PMS Products:

  • Multicap Portfolio
  • Bluechip Portfolio
  • Freedom Portfolio
  • Freedom ETF Portfolio

 

Hybrid Products:

  • Dynamic Stock Allocation Portfolio (DSAP) - Aggressive
  • Dynamic Stock Allocation Portfolio (DSAP) - Conservative
  • Dynamic ETF Allocation Portfolio (DEAP) - Aggressive
  • Dynamic ETF Allocation Portfolio (DEAP) - Conservative
  • Balanced Advantage Portfolio (BAP)

 

Debt Products:

  • Liquid Portfolio

No, NJ Asset Management only offers pure rule-based active PMS products.

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