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
| Fund Name | AUM ( in ₹ crores) | Expense Ratio (%) | CAGR 3Y (%) | CAGR 5Y (%) |
| Bandhan Sterling Value Fund | 10,053.78 | 0.71 | 17.37 | 26.32 |
| ICICI Pru Value Discovery Fund | 48,987.78 | 1 | 21.84 | 26.17 |
| JM Value Fund | 1,084.99 | 0.98 | 24.99 | 25.64 |
| HSBC Value Fund | 13,674.92 | 0.78 | 22.72 | 25.45 |
| Nippon India Value Fund | 8,563.55 | 1.16 | 22.17 | 25.23 |
Note: The above-mentioned funds are for informational purposes only and are not recommendations. The funds are based on a 5-yr CAGR as of January 8, 2025, which is subject to change frequently. Check out real-time data on Angel One.
Bandhan Sterling Value Fund
The Bandhan Sterling Value Fund focuses on generating long-term capital growth by investing in undervalued stocks. With an expense ratio of 0.71% and a PE ratio of 37.31, this fund provides a Sharpe ratio of 0.96, indicating a relatively moderate risk-adjusted return.
The fund’s portfolio primarily includes high-quality value stocks, making it suitable for investors seeking steady growth. The minimum lump sum investment required is ₹5000, and the fund does not impose any exit load after one year, ensuring better liquidity for investors.
ICICI Pru Value Discovery Fund
The ICICI Pru Value Discovery Fund seeks to identify undervalued stocks that offer significant growth potential. With an expense ratio of 1.00% and a PE ratio of 30.31, the fund offers a Sharpe ratio of 1.44, reflecting strong risk-adjusted returns.
It focuses on long-term capital appreciation by investing in equities that are trading below their intrinsic value. The minimum lump sum investment is ₹5000, with no exit load after one year, making it a good option for investors looking for value-based investing.
JM Value Fund
The JM Value Fund has an expense ratio of 0.98% and a PE ratio of 34.83, providing a Sharpe ratio of 0.97, indicating a solid risk-adjusted return. The fund can be ideal for those seeking to invest in value stocks with stable growth prospects.
Investors can start with a minimum lump sum investment of ₹5000, and there is no exit load after one year, ensuring liquidity and flexibility.
HSBC Value Fund
The HSBC Value Fund invests in high-quality, undervalued stocks to generate long-term capital appreciation. With an expense ratio of 0.78% and a PE ratio of 34.44, it offers a Sharpe ratio of 1.14, reflecting a strong risk-adjusted performance. Managed by HSBC Global Asset Management, this fund can be suitable for investors looking to achieve long-term growth through value investing.
It requires a minimum lump sum investment of ₹5000, and there is no exit load after one year, offering liquidity and flexibility.
Nippon India Value Fund
The Nippon India Value Fund has an expense ratio of 1.16% and a PE ratio of 39.97, offering a Sharpe ratio of 1.04, which indicates solid risk-adjusted returns. The fund is designed for investors looking for long-term capital growth by investing in value stocks. With a minimum SIP investment of ₹500 and no exit load after one year, it offers an accessible option for investors seeking value-based equity exposure.
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Value Funds FAQs
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