Understanding the Low Volatility Factor in Factor investing

The Low Volatility factor provides a mechanism for investors to control risk while generating similar or superior investment returns relative to the market over the long run.

Factor Investing based on Low Volatility comprises of buying stocks with low historical volatility measured using indicators such as beta and standard deviation.

While traditional finance theory suggests that excess returns can only be generated by taking on extra risk, the low volatility factor contradicts this statement.

Index Funds and ETFs tracking indices such as the S&P BSE Low Volatility Index offer a cost-efficient exposure to the Low Volatility Factor.

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