What Are Value Funds?

Value Mutual Funds

A Value Fund is an open-ended equity fund that follows a value investment strategy. This type of fund is a subset of Mutual Fund and such funds invest in those stocks which are  undervalued due to certain factors but have the potential to yield higher returns in the long run. Value Funds are typically seen as allocations for long-term investments that grow steadily over time. Hence, such an investment is considered to be related to diligent and patient investing.

The principle behind value investing is that for a number of reasons, the market overlooks the actual value of shares, resulting in trading of such shares below their actual value. Value Fund Managers identify such market inefficiencies. In theory, once these inefficiencies are corrected by the market, the value investor will gain from a share price increase.

Value Investing Strategy

Value investing strategy is used by an investor who examines the shares of companies that are undervalued and have shares prices that do not adequately represent their true worth. By examining the financials, business model, competitive position, management team, etc., the fund manager calculates the intrinsic value of the stocks based on these fundamental characteristics, which may not be adequately represented by their market value. The share price of such stocks then increases once the market realizes the actual value of these stocks and the investor gains from such an increase.

Who Should Invest In Value Mutual Funds:

The combination of growth and value investing has been considered by investors to be a sure method for wealth generation. However, purchasing the right stocks at the right time requires a well-founded understanding of the share market.  Good value stocks are considered to be hard to find, which is why Value Mutual Funds are ideal for such investors.

Factors to consider when investing in Value Mutual Funds:

Before investing in Value Funds, the investor must look at the following:

The performance of the fund over the last five years is what most investors consider. This is especially important when investing in value funds. You may determine if the aforementioned plan is suitable for your portfolio by looking at how the fund management was able to meet the investment objective of the fund over several market cycles while employing the value investing technique. Therefore, be sure to look at the fund’s historical performance as well as the stocks that make up the scheme’s portfolio. Make an informed judgment based on analysis.

Long-Term Focus On Value Investing

When investing in equities or equity-related securities, many investment gurus advise holding your position for at least 3 to 5 years. This is especially important in value investing since the fund manager buys equities that are undervalued as a result of specific market conditions. Before the stock prices begin to rise once more, the conditions may need some time to pass. Therefore, if you have an investment horizon of at least five years, consider investing in a value fund.

Basket of Stocks

Since this is an equity fund, the manager has the option of investing in value stocks of large- or small-cap companies. Look for a value fund that diversifies across different market caps and sectors unless you are seeking exposure to companies in a particular market capitalization category. Investing wisely never involves putting all your eggs in one basket.

List of Top 5 Value Mutual Funds – Basis 5 Year Returns