By the end of October 2022, the Indian mutual fund sector will have 35 smart-beta schemes with a combined AUM of at least Rs 2,700 crore. This idea is still relatively novel in the Indian equities investment market but quickly gaining traction. Out of the total of 35 smart-beta funds, 21 have only been around for a year, with a total of about Rs 787 crore in assets under management (AUM).

Exchange-traded funds, or ETFs, allow investors to purchase exposure to a pool of stocks designed to track a specific market cap-weighted index, such as the Nifty 50 or Nifty 100. Because there is no active fund manager, you save money while receiving a diverse portfolio of high-quality equities.

Further, a smart-beta ETF screens stocks in an index to provide the characteristics you care about. It's an aggressive tactic employed within a passive framework. Using an index fund wrapper, the fund can invest in appropriate ETFs rather than individual equities.

Moneycontrol's advice from this time last year was to hold off on investing in what was becoming a fad, as about 13 such scams were already operating at the time.

The Best Smart Beta Funds

There are currently 35 Smart Beta funds operating in the Indian financial market, and 5 of them have been there for at least five years and have done well for their investors.

1. 1. Nippon India ETF Nifty 50 Value 20

• The 3-year return is 20.2 percent
• 5-year return is 16.4 percent
• Asset Under Management is Rs 70 crores

2. ICICI Pru Nifty 50 Value 20 ETF

• 3-year return is 19.9 percent
• 5-year return is 16.2 percent
• Asset Under Management is Rs 58 crores

3. DSP Nifty 50 Equal Weight Index

• 3-year return is 18.9 percent
• 5-year return is 10.5 percent
• Asset Under Management is Rs 456 crores

4. Kotak Nifty 50 Value 20 ETF

• 3-year return is 19.9 percent
• 5-year return is 16.2 percent
• Asset Under Management is Rs 38 crores

5. ICICI Pru Nifty 100 Low Volatility 30 ETF

• The 3-year return is 15.3 percent
• 5-year return is 12.5 percent
• Asset Under Management is Rs 1660 crores

Smart Beta Funds: A Market-Beating Strategy

The term "smart beta fund" refers to an ETF that invests in securities based on some metric other than market capitalization. Smart indexes are investing strategies that track the performance of an underlying index but aim to outperform it through strategic alterations to its underlying holdings. Here are some strategies you can use to beat the market.

1. Investing with Your Values

D.C.-based SerenityShares Investments chief executive Scott Sacknoff recommends the SerenityShares Impact ETF (ticker: ICAN). In terms of dividends, the fund invests in various companies and industries. According to Sacknoff, "The fund considers societal and environmental issues. There is a broad focus on faith-based funds and organizations that make a difference, with 20 themes including demographic and sociological problems, caring for the elderly, recycling, and renewable energy. The fund charges an annual fee of $50 for every $10,000 invested (or 0.5 percent).

2. Volatility as An Advantage

According to Mannik S. Dhillon, president of VictoryShares & Solutions in Cleveland, market-cap-weighted indices give investors a false impression of diversification since they are overly focused on a few firms and sectors. The VictoryShares US 500 Enhanced Volatility Wtd Index Exchange Traded Fund (CFO) is his proposed answer; it tracks an index of the largest U.S. equities by market cap, screens for stocks with positive earnings, and weights holdings by volatility. The expense ratio for CFO is 0.35 percent.

3. Betting Against the Market

Factor-based ETFs can help you profit if you anticipate a stock or bond market decline. In short selling, borrowed shares are sold without ever owning them. The investor then buys shares at a discounted price and realizes a profit after deducting the cost of any commissions and any interest incurred. One of the several short, smart-beta funds available through Direxion ETFs is the Direxion Daily Total Bond Market Bear 1X Shares (SAGG). This bond fund uses a smart-beta strategy to provide returns inverse to those of the Bloomberg Barclays U.S. Aggregate Bond Index. There will be a 0.45% cost.

4. Get Paid in Dividends

Dividends are viewed as insurance against the ups and downs of the stock market. The SPDR S&P Dividend ETF (SDY) is designed to help investors take advantage of this pattern by tracking an index composed of 50 dividend payers from the S&P 1500 Composite Index that have increased their dividend payments for 20 years in a row or more. The dividend yield is then used to weigh the companies based on the findings of the first screen. The dividend yield of 2.4% is decent if you're looking to generate some regular income. Expenses for SDY are 0.35 percent of revenue.