Best Value Funds
About Value Funds
- Value mutual funds are a type of equity fund built with a value investing strategy. As per the norm, these funds have to invest at least 65% of their assets in equity-oriented securities. Fund managers of value funds identify and invest in undervalued stocks or stocks that trade at a discount. To appreciate the concept of value funds, let us first understand what value investing means.
- Sometimes the stock price is not the true indicator of the share’s worth. Having identified this, Benjamin Graham, known as the father of value investing, introduced this investment philosophy in his book, The Intelligent Investor, in 1949.
- Value investing means investing in stocks whose intrinsic value is higher than the prevailing market price. Since they are undervalued, value stocks have the potential to generate significant returns in the long term. The intrinsic value of the stock or the company is ascertained by considering its business model, financials, management team, competition, etc. Based on these studies, if a stock’s market value is less than its intrinsic value, it is considered a ‘value stock’.
How Do Value Funds Work?
Value funds are those that invest your capital in value-based company securities. The Security and Exchange Board of India, or SEBI, has classified value mutual funds as those that follow a strategy of value investing in terms of the choice of stocks to invest in the mutual fund. Aligned with such a strategy of investment is the fact that 65% of the fund should be invested in value stocks.
Value stocks are those that may be undervalued presently, but have the potential of rising in value in the future. The premise underlying such an investment strategy is that, once the market realises the stock’s true value, its price will rise and profits may be made. Value stocks are chosen from companies with solid financial backgrounds and robust fundamentals overall.
Features of Value Mutual Funds
- Requires extensive research: Identifying value funds requires extensive market analysis and research. A value mutual fund that performs well in the market is usually managed by fund managers that have significant experience and awareness of the stock market and fundamental analysis of stocks.
- Long-term investments: Managers of a value fund invest in stocks that are undervalued due to certain conditions. Generally, these conditions may not have specific timelines to recover. Hence, it is important to stay invested in value funds for at least 5 years.
- Risk appetite: The risk level associated with value funds is high as they are equity funds. They are prone to market risks like any other equity mutual fund scheme. However, the downside risk is relatively lower in a bear market compared to other equity funds since the stock prices at the time of investing in these funds are already lower. And the fall in the bear market may not be as significant as others.
- Past performance: The past performance of a value fund does not guarantee similar performance in the future. However, it is still good to look at the historical returns. This gives you an idea of how the fund performed in various market cycles.
Advantages of Investing in Value Funds
- Diversification: You can diversify within value funds by investing across market capitalisations and industries.
- Higher returns: Since value funds invest in undervalued stocks with high potential to grow in the long run, they may generate a higher return in the long term.
- Strong fundamentals: Fund managers pick value stocks with good fundamentals, which strengthens your portfolio.
- High flexibility: A value fund can invest in stocks of any sector and market cap without limit. Therefore, fund managers have high flexibility in asset allocation to earn optimal returns based on the market analysis.
- Flexible investment options: As with mutual funds, value funds have lumpsum and SIP investment options.
- Comparatively lower downside risk: Compared to other equity funds, value funds may not suffer great losses due to market instability in a bear market. This is because the underlying stock would already have been trading at a discount, leaving less room for a further price drop.
Risks Involved in a Value Fund
- Like other equity mutual funds, value funds are highly risky. The NAV of a value is sensitive to market conditions.
- If the fund manager of a value fund is not well-experienced in picking value stocks, the fund may suffer losses
- Value funds may have associated costs like entry load, exit load, expense ratio, etc., decreasing your overall returns
Factors To Consider Before Investing in Value Mutual Funds
In case you are interested in the investment in mutual fund, you must consider a few factors that could affect your decision to invest. It is worth assessing the fund (or funds) you are considering regarding the value-oriented companies they may be investing in and the past performance of the fund (or funds). Here are some factors to keep in mind:
- Typically, when you wish to invest in any mutual fund, it is a good idea to do some background work on the mutual fund itself. If you are considering a specific value fund to invest in, you may want to evaluate the fund’s performance in the past. Generally, a fund’s track record over the previous 5 years may be considered before you invest.
- Consider your personal financial requirements and investment horizon before you think of value funds. As value-based funds may potentially rely on returns on equity due to the possible growth of companies, you may have to wait for long-term returns. Hence, if you have long-term perspectives, you may contemplate investment.
- While you are assessing the fund and companies whose stock it invests in, you may want to consider portfolio diversification. For instance, value funds may invest in particular companies or sectors you may or may not want exposure to. You may want to be exposed to certain funds offering you exposure to value companies only in sectors you are interested in for your own unique portfolio diversification requirements.
- Think about your own risk tolerance and investment behaviour. Before you invest in any mutual funds, this is one of the most crucial considerations. Since value funds invest a large portion of capital in equity, there may be a significant amount of risk involved, even if you are prepared for investment in the long term.
Who Should Invest in Value Funds?
- If finding value stocks is hard for you: Identifying the best value stocks is not a walk in the park. It requires experience in the market, analytical skills, and expertise. Therefore, if you find looking for value stocks to be tedious, you can directly invest in the best value mutual funds. This way, experts handpick value stocks and monitor the portfolio to optimise returns for you.
- If you have a high-risk appetite: Since value mutual funds are equity funds, they come with high risks and are prone to market volatility. Therefore, ensure that your risk profile aligns with the scheme’s risk level.
- If you are a long-term investor: Value mutual funds are a suitable option for long-term investors. Consider these funds if you have an investment horizon of more than 5 years.
- If you are new to investing: If you are new to the market and lack the expertise to analyse stocks but want to benefit from investing in value stocks, you can consider these funds. In the long run, you would have accumulated significant returns from these.
Taxability of Value Funds
Since value funds are a type of equity fund; they have the same tax treatment. The following tax rules are applicable to the holder of value funds:
- Short-term Capital Gains (STCG): Gains on value fund units sold within a year of buying are taxed at 15% plus applicable cess.
- Long-term Capital Gains (LTCG): Gains up to Rs. 1 lakh per year on selling value fund units after a year of holding them are tax-free. Gains beyond this limit are taxed at 10% with no indexation benefit.
- Dividend tax: In addition to capital gains tax, you must also pay tax on dividend income, if any, generated by the value fund.
How To Invest in Value Funds?
Investing in the value Mutual Fund is hassle-free when done through your Angel One account. You just have to follow these simple steps:
Step 1: Log in to your Angel One account.
Note: In case you do not have an account with Angel One, you can open a demat account with us in under a few minutes by submitting the necessary documents.
Step 2: Determine a value fund that suits your needs and risk profile. You can learn more about each value fund on the Angel One app. Things to consider at this stage are:
- Search for the fund you want to invest in.
- Analyse the fund’s past performance, tax incidence, and the sectors and companies it invests in. You can also calculate the potential returns using the calculator.
- Evaluate the fund’s level of risk, its ratings and expense ratio.
Step 3: Once you finalise the value fund(s) you want to invest in, open your Angel One account, go to the Mutual Funds section, and look for it.
- Decide whether you want to invest via SIP or make a one-time investment
- Decide your monthly SIP date. Now, enter the amount you want to invest and choose the payment mode.
- After placing the order, you can create an AutoPay to make hassle-free future instalments in case of SIP investments.
Top 5 Value Funds
| Name | AUM (Rs. in crores) | Minimum lumpsum (Rs.) | CAGR 3Y (%) | CAGR 5Y (%) |
| ICICI Pru Value Discovery | 27,449.73 | 1000 | 39.9 | 15.0 |
| UTI Value Opp Fund | 6,740.63 | 5000 | 31.63 | 12.17 |
| Templeton India Value Fund | 845.10 | 5000 | 43.67 | 11.95 |
| JM Value Fund | 163.86 | 1000 | 34.58 | 11.92 |
| Nippon India Value Fund | 4,641.67 | 500 | 35.17 | 11.68 |
The above-mentioned top funds are for informational purposes only and are not recommendations. The funds are based on a 5-yr CAGR, which is subject to change frequently. Check out real-time data on Angel One.
ICICI Pru Value Discovery Fund
- Having an AUM of Rs. 27,449.73 crore, this large-sized value fund is managed by Sankaran Naren and Dharmesh Kakkad. ICICI Pru Value Discovery Fund has generated a 10-yr CAGR of 18.81%. The fund invests 70.14% in large cap stocks, 8.44% in mid cap stocks and 8.04% in small cap stocks. The fund has an expense ratio of 1.22% and an exit load of 1%.
UTI Value Opp Fund
- This large-sized value fund from UTI Mutual Fund has an AUM of Rs. 6,740.63 crore. It is managed by Amit Premchandani and has given a 13.79% 10-yr CAGR. 64.65% of the assets are invested in large cap stocks, 19.72% in mid cap stocks and 13.75% in small cap stocks. UTI Value Opp Fund has an exit load of 1% and an expense ratio of 1.15%.
Templeton India Value Fund
- Having an AUM of Rs. 845.10 crore, this mid-sized value fund is managed by Anand Radhakrishnan and Rajasa Kakulavarapu. Templeton India Value Fund has generated a 10-yr CAGR of 15.30%. The fund invests 64.65% in large cap stocks, 8.27% in mid cap stocks and 13.75% in small cap stocks. The fund has an expense ratio of 0.91% and an exit load of 1%.
JM Value Fund
- This small-sized value fund from JM Financial Mutual Fund has an AUM of Rs. 163.86 crore. It is managed by Satish Ramanathan, Asit Bhandarkar, and Gurvinder Singh Wasan. The fund has given 17.26% 10-yr CAGR. 53.81% of the assets are invested in large cap stocks, 23.38% in mid cap stocks and 19.99% in small cap stocks. JM Value Fund has an exit load of 1% and an expense ratio of 1.87%.
Nippon India Value Fund
- Having an AUM of Rs. 4,641.67 crore, this mid-sized value fund is managed by Dhrumil Shah and Meenakshi Dawar. Nippon India Value Fund has generated a 10-yr CAGR of 16.10%. The fund invests 68.56% in large cap stocks, 68.56% in mid cap stocks and 11.94% in small cap stocks. The fund has an expense ratio of 1.23% and an exit load of 1%.
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Value Funds FAQs
Are value funds high risk?
Value mutual funds are risky as they invest at least 65% of their assets in equity. These funds are exposed to market volatility.
Should I invest in value mutual funds?
You can invest in value funds in case you want to invest in stocks trading at a discount and capitalise on the price growth over the long term. Be informed that these funds have high risk and should be held for over 5 years.
What are the expected returns of value mutual funds?
Value funds have given 27.5% annualised returns from October 1, 2020 till December 31, 2022. The returns totally depend on the growth prospects of the underlying stocks, the fund manager’s stock-picking skills, and economic conditions.
What are the risks involved in investing in value mutual funds?
Value funds are exposed to market volatility. Besides, the performance of these funds also depends on the fund manager’s expertise in picking value stocks.
Are value funds taxable?
Value funds are treated like equity funds for tax purposes. Short-term capital gains are taxed at 15% plus cess, whereas long-term capital gains are tax-free up to ₹1 lakh per year. Gains beyond this limit are taxed at 10% with no indexation benefit.
How much money should I invest in value funds?
Value investing requires a lot of patience because there might be periods when the underlying stocks would underperform. If you lose patience and sell your units, you may incur losses. So, experts say limiting your value fund investments to 20% of your portfolio is best. Again, this depends on factors personal to you.
