Factor investing styles: Momentum tops with over 24% returns in 10 years—but does it carry the highest risk?

Factor investing, once a niche investment strategy, has rapidly gained popularity in India. According to an Edelweiss Mutual Fund study, the combined assets under management (AUM) of smart beta ETFs and index funds have surged from ₹1,153 crore in June 2021 to ₹52,739 crore in June 2026, registering a compound annual growth rate (CAGR) of more than 115%.

The sharp rise indicates that investors are increasingly looking beyond traditional market-cap-based investing and choosing portfolios built around specific characteristics, or “factors”.

There are five widely followed factor-investing styles: Momentum, Quality, Growth, Low Volatility and Value. But which of these has generated the highest returns, and which comes with the greatest risk? Let's find out.

What do the 5 factor investing styles mean?

• Momentum: Invests in companies whose share prices have been performing strongly in recent months, with the expectation that the trend could continue.
• Quality: Focuses on financially sound businesses with stable earnings, efficient operations and low debt.
• Growth: Targets companies that are expanding rapidly and have strong future earnings potential.
• Low Volatility: Invests in companies whose share prices have historically been more stable than the broader market.
• Value: Looks for fundamentally strong companies that are available at relatively attractive valuations.

Which factor has delivered the highest returns?

Momentum has consistently generated the highest returns across almost every investment horizon.

Looking at the 10-year performance, momentum emerged as the best-performing factor and gave 24.9% annualised returns, while value followed at 20.2%. Growth, quality and low volatility trailed behind.

The trend was largely similar over the 7-year period, with momentum again leading the chart at 28.7%, followed by value.

The 5-year period was the only exception, where the value factor narrowly outpaced with 25.1% returns.

Over the past 3 years, momentum gave 28.5% returns, remaining ahead of value, while growth also delivered strong gains.

The pattern broadly continued in the one-year period, with momentum staying on top, while low volatility was the only factor to post a negative return.

Which factor carries the highest level of risk?

A higher standard deviation indicates greater volatility, while a lower reading suggests more stable performance. Based on the 10-year standard deviation, Value emerged as the riskiest factor with an SD of 20.2%, followed closely by momentum at 19.4%.

Low volatility, as its name suggests, was the least risky factor, with a standard deviation of 11.7%, indicating significantly lower fluctuations than the other strategies.

The strongest-performing factors, momentum and value, have also been among the most volatile, suggesting that higher long-term returns have generally come at the cost of greater fluctuations.

Disclaimer: This is purely for educational/ informational purposes and should not be taken as any sort of investment advice. Always consult a SEBI-registered advisor before making any investment decisions.