VALUE FUNDS
WHAT IS A VALUE FUND?
Value Funds invest in undervalued stocks which have the potential to deliver long term returns and profit. The rationale is that these stocks are undervalued due to deficiencies in the stock market or the ideology of the investors. Assuming that the investors and markets realise the potential of these stocks, the price will increase and the value funds as a result of investing before the purple patch will generate lucrative returns.
Investors who recognize the potential of a company in its early stage are reaping the rewards now. A value fund managers try to do this for investors who do not have the time or required knowledge to apply this strategy. They invest in multiple companies that have long term growth potential but are currently flying under the radar.
BENEFITS OF INVESTING IN VALUE FUNDS
1. Diversification:
By investing in Value Funds, investors get exposure to a diversified portfolio of value stocks.
2. Less Vulnerability:
As we discussed, the value funds investment strategy focuses on undervalued stocks, they are less vulnerable.
3. Boost confidence:
The stocks in Value Fund spans across all economic sectors which are overlooked. This boosts the market confidence of the stocks which are underperforming.
4. Principles of Warren buffet:
Value funds work on the principle of value investing which selects only those stocks that are traded at a price less than their intrinsic value and generate profits without worrying about market productivity. They are popular for outperforming growth funds too over the long term.
WHY VALUE FUNDS?
The ideology behind value funds is to invest in stocks of those entities that are not in talks or favor at this time. The intention and aim here are to select stocks that appear to be underpriced and undervalued by the market. When an investor invests in value mutual funds, they tend to look out for bargains and opt investments that have low price with respect to net current assets, sales and earnings.
Most of the other mutual funds in equity follow a growth style, wherein it invests in stocks with healthy earnings with less emphasis on the price of the stock. Whereas, these funds identifies stocks that are priced lower than their intrinsic or actual value. These are considered to deliver good and healthy returns over the long run. So ideally, an investor who wants to invest in these funds should stay invested for the long term. Value equity funds offer a better risk and reward proposition, specifically in a heated market environment.
WHO SHOULD INVEST IN VALUE FUNDS?
A value fund depends on the future potential of undervalued shares. This automatically signifies that a value fund should be considered as a long duration investment. Given the very high risks associated with banking on multiple shares to deliver 5x, 10x, or 20x growth. It is advisable and suggested to consult a ZFunds Expert before investing in Value Funds even if you are an experienced investor.
TOP VALUE FUNDS
Some of the popular value funds are as follows:
| FUNDS | NET ASSETS | 3 YEAR RETURNS |
| UTI Value Opportunities Fund | Rs. 6,305 Crs | 14.5% |
| Nippon India Value Fund | Rs. 4,087 Crs | 14.7% |
| ICICI Prudential Value Discovery Fund | Rs. 21,195 Crs | 13.5% |
| JM Value Fund | Rs. 152 Crs | 12.7% |
| IDFC Sterling Value Fund | Rs. 3,988 Crs | 12.6% |
| L&T India Value Fund | Rs. 7,547 Crs | 12.4% |
| Templeton India Value Fund | Rs. 567 Crs | 10.3% |
THE CRUX
Value Mutual Funds invest in undervalued stocks that are overlooked due to investor ideology, market deficiencies or any other factors, even though the stocks have the potential to deliver future profits. Historical data and stats suggest that value funds can generate 10% to 15% over a tenure of more than 5 years. Nevertheless, there are other mutual funds like global funds and international funds that can deliver good or better returns with lesser unknowns. However, the addition of a fund in any investor's portfolio will depend upon his risk profile, investment horizon & other requirements.