Investing in a multi-factor fund NFO? What is it, and how is it different from multi-cap and multi-asset allocation funds? 

A multi-factor fund is a sectoral/thematic equity mutual fund scheme that aims to generate wealth by combining multiple factors, such as value, momentum, quality, and low volatility, instead of relying on a single factor. 

Multi-factor funds also aim to diversify risk and, in turn, give better returns by reducing the impact of the underperformance of any one factor. But returns are never guaranteed, like any equity mutual fund.

Currently, there are many new fund offers (NFOs) of multi-factor funds open for subscription, like the Bandhan Multi-Factor Fund and the Sundaram Multi-Factor Fund. 

Let’s first learn about multi-factor funds in detail and then take a look at these funds that are open for subscription in July 2025. 

Multi-factor fund factors and benefits

As mentioned above, multi-factor funds focus on several factors to mitigate risk and lead to better returns for investors. Here are some of the common factors: 

• Value: Investing in stocks that are trading below their typical price
• Momentum: Investing in stocks that have performed strongly in recent times
• Quality: Investing in companies with strong financial performance 
• Volatility: investing in stocks with lower price fluctuations

By combining these factors, these funds aim to achieve the following benefits: 

• Low risk: The impact of any one factor, like price volatility, is reduced in these funds. Multiple factors may lead to lower risk overall. 
• Returns: Potentially higher returns with reduced risk and a balanced strategy. 
• Diversification: By diversifying across factors that perform differently, these funds aim to perform comparatively better in varied market phases. 

How is a multi-factor fund different from multi-cap and multi-asset allocation mutual funds?

Multi-factor, multi-cap and multi-asset allocation mutual funds differ mainly in their investment strategies and the types of assets they invest in. 

Multi-cap mutual funds invest in a mix of large-cap, mid-cap and small-cap stocks, aiming to have a diversified portfolio across various market capitalisations. The focus of these funds is on market capitalisation segments, offering potentially higher returns from mid-cap and small-cap stocks with stability from the large-cap ones. 

Multi-asset funds also focus on diversification, but across different asset classes, like stocks, bonds, precious metals (gold and silver), etc. They aim to reduce overall risk by investing in asset classes with different risk levels and returns. 

All three funds focus on diversification, but have different investment strategies:

• Multi-cap funds diversify across company sizes (market cap)
• Multi-asset funds diversify across asset classes (like stocks, bonds)
• Multi-factor funds diversify across investment factors (price, quality)

This difference in investment approach affects their risk-return profiles and suitability for investors, among other things.  

Multi-factor fund NFOs open in July

This is an open-ended equity sectoral/thematic fund that opened for subscription on July 10, 2025, and will remain open till July 24, 2025. The minimum subscription amount for the fund is ₹1,000 and any amount thereafter. 

The exit load on this fund is 0.50% of the applicable NAV if redeemed/switched out on or within 30 days from the date of allotment. After that, there will be no exit load. 

This is also an open-ended sectoral/thematic fund that opened for subscription on July 2, 2025. It will close on July 16, and the minimum subscription amount is ₹100. 

The exit load on the fund is 1% of the applicable NAV in case of any redemptions, switches or withdrawals by way of SWP within 365 days from the date of allotment. After 365 days, the exit load would not be applicable. Further, exit load would be waived off on Intra-scheme Switch-outs/STP. 

Who may invest in multi-factor funds?

While multi-factor funds have many benefits, like diversification, investors should consider these things before investing in them:

Before investing in a multi-factor fund, ensure you have read all the terms and conditions carefully and that you understand the factors and methodology used in it. These funds may be suitable for those who seek more suitable through all market cycles and aim for enhanced returns, but are unsure which market cap to choose.