A value mutual fund is a type of stock fund that invests in low-value stocks. For example, stocks that trade lower than company fundamentals suggest are considered undervalued.
These stocks could come from well-established companies with significant market experience. The objective of investing in a value fund is to reap gains as stocks rise over time. Thus, value investing involves choosing stocks that trade below their intrinsic value but offer strong prospects for long-term growth.
Billionaire investor Warren Buffett might be one of value investing’s biggest advocates.
As the name suggests, value stocks offer good deals. Their unique selling point is the potential for future growth. However, stock picking might be easier said than done. As with other asset classes, it requires a systematic study of company fundamentals and performance. Although fund houses conduct diligent research, you can also do this before selecting a good fund.
What are value funds in MF?
Value funds are equity mutual funds that adopt a value investing strategy. For example, they invest in discounted or undervalued stocks for long-term growth. Value funds are often contrasted with growth funds, which target fast-growing emerging companies.
Stocks in a value fund may represent undervalued companies/assets across the broad market: large, mid and small caps. The Nifty Value Index provides insight into the performance of value funds.
Who should invest in value funds?
Value funds attract investors because they invest in companies that have a positive track record of dividends, earnings, sales, etc. These companies have strong fundamentals but low stock prices.
Therefore, value funds are ideal for investors looking to diversify their portfolios for long-term goals.
Investors with a long-term investment horizon might explore them as these funds invest in underperforming assets but are likely to perform better in the long term. Value funds can also provide dividends; therefore, they might appeal to those looking for a regular side income.
Additionally, stocks and value funds typically outperform during a downturn; therefore, they could offset poor performance or losses during a high-growth market phase.
However, mutual fund plans do not guarantee guaranteed returns. As in other mutual fund systems, value mutual funds also involve various risks, including possible risk of default and loss of principal.