Value Funds – Value Mutual Funds in India
There are different styles of investing adopted by fund managers of different schemes. These investment styles allow them to invest the corpus of the scheme efficiently. Growth, Value, and Contrarian investment strategies are the three commonly used investment styles. Based on these styles, the funds are called Growth Funds, Value Funds, and Contra Funds, respectively. Here, we will explore Value Mutual Funds and talk about some important aspects and features of these funds.
What is a Value Fund?
In order to understand Value Mutual Fund, let’s first talk about value investing strategy.
When an investor (or a fund manager) adopts a value investing strategy, he looks for stocks which are undervalued and trade for less than their respective intrinsic values. There are many companies in the market whose stock price is not the true indicator of their worth. They are intrinsically more valuable and have a lot of potentials to grow. The intrinsic value of a company is calculated by considering its financials, business model, competitive position, management team, etc. If the company’s market value is less than its intrinsic value, then it is considered to have ‘value’.
Therefore, a Value Fund is an equity fund which invests in stocks of companies having ‘value’.
Who should invest in Value Mutual Funds?
Many seasoned investors swear by a combination of growth and value investing as a sure method of generating wealth. However, finding the right stocks and purchasing them at the right time requires a lot of effort and awareness of the market. Most investors find the process of finding good value stocks overwhelming. Value Mutual Funds are good for such investors.
Further, value stocks are under-performing stocks which are expected to perform better in the long-term due to their strong intrinsic value. Hence, people looking to invest in value funds must have a long investment horizon.
Also, investors who have high exposure to growth stocks opt for value funds to ensure a stable return on investment in any market cycle.
Factors to consider before investing in Value Mutual Funds
We always recommend investors to look at the past performance of the fund before investing. Additionally, here are some factors that you can consider before investing in Value Mutual Funds in India:
Past performance is important
Most investors look at the performance of the fund over the past five years. While investing in a value fund, this is more critical. Looking at how the fund manager has managed to achieve the investment objective of the fund through various market cycles while following the value investing strategy will help you understand if the said scheme is good for your portfolio. Hence, ensure that you research the past performance of the fund and look at the selection of stocks in the portfolio of the scheme. Analyze and make an informed decision.
Value Investing is for long-term investors
Many investment gurus will recommend staying invested for at least 3-5 years when you are investing in equity or equity-related instruments. In value investing, this is more crucial since the fund manager invests in stocks which are underpriced due to certain market conditions. The conditions can take time to fade away before the stocks start performing again. Hence, invest in a Value Fund if you have an investment horizon of at least 5 years.
Look for a diversified Value Fund
Being an equity fund, the fund manager can choose to invest in value stocks of large-cap companies or small/mid-cap ones. Unless you are looking for n exposure to companies belonging to a specific market capitalization group, look for a value fund which diversifies across various market caps and sectors. Putting all your eggs in one basket is never an intelligent investment strategy.