New Delhi, April 6 -- Factor investing works by targeting specific, identifiable characteristics of stocks that have historically delivered better returns than the broader market. Instead of picking stocks based on a fund manager's conviction or simply tracking an index, factor investing builds portfolios around measurable traits - called factors - that research has shown to drive returns over time.

The most widely recognised factors are value, quality, momentum, low volatility, and size. Each one captures something specific. Value targets stocks that are cheap relative to their earnings or book value. Quality focuses on companies with strong balance sheets, high returns on equity, and stable earnings. Momentum backs stocks that have bee...