To provide clients with a variety of investment possibilities, mutual fund managers use diverse investing strategies. They can allocate the corpus effectively among several funds. Based on the investing patterns, we have growth funds, counter funds, and value funds. We’ll talk about value mutual funds here. However, understanding value investing is necessary before delving into value funds. Value investing uses fundamental analysis to choose equities that are presently trading below their intrinsic value. It is seen as the contrary to Growth investing, which concentrates on making investments in start-up businesses with significant growth potential. Let’s now learn about value funds.
What are Value Funds?
Value funds are mutual funds where fund managers invest in stocks that are currently undervalued. The strategy’s underlying assumption is that investors will profit from the rise in value. They believe that their value will increase in the future when the market recognises their true potential. Value stocks are frequently owned by reputable businesses that give investors dividend payments.
Value stocks may not seem to offer the same kind of returns as that of growth stocks. However, over time, these stocks have a lot of room to rise. As a result, only make value fund investments if you have a long investment horizon. When these stocks’ value eventually rises, the fund managers hope to profit exponentially.
Things to Consider While Investing in Value Funds
Before investing in value funds, consider the following things.
Past performance
When choosing value funds, historical performance is crucial. Investors should examine the fund manager’s performance over the previous five years to assess whether the fund’s goal has been met through different market cycles. It will assist you in determining whether the fund is an appropriate choice for your portfolio.
Time horizon
For optimal returns, financial advisors often advise investing in equity funds for a minimum of three to five years. Over an extended investing term, returns may be generated by equity funds. Value companies can only reach their full potential over an extended investing horizon because fund managers choose cheap stocks. So, when investing in value mutual funds, patience is required.
Diversification
To obtain some returns, fund managers may choose equities from large-cap, small-cap, and mid-cap funds. So, select funds that provide varied investing options across various market capitalisation and sectors, unless you are seeking exposure to a specific industry. For equities investments to reduce risk exposure and boost portfolio performance, diversification is essential.
Risks
Investors must evaluate the risks they are taking. Value funds frequently invest in undervalued stocks that go against long-term market trends. Therefore, investors must be aware that these companies will take a while to generate returns. If they don’t meet expectations, they could even suffer large losses.
Advantages of Value Funds
Here are the benefits of value funds.
- You can invest in a diversified portfolio with value mutual funds.
- Stocks in a value fund are chosen based on a strategy. So, they are less susceptible to large fluctuations in the market.
- Investments are made in all underappreciated economic sectors, giving them attention and boosting investor confidence.
- Stocks in value funds allow investors to purchase company shares at a discount to their real worth without having to worry about how the market performs.
Why Invest in Value Funds?
Value funds are a great way to increase portfolio diversification. Stocks are selected after good study and consequently, are less volatile than growth stocks. There is less likelihood that the value of these shares will decrease during a decline. This is because they are now trading below their appropriate price.
These are quality equities, sometimes featuring companies with specific dividend distribution programs. These businesses have sound financials and fundamentals that will enable them to experience rapid future growth.
When investors seek value stocks, they usually look for low-price investments in net current assets, earnings, and sales, against other funds that engage growth companies. They invest in shares with robust revenues. Value investors are aware that these stocks have the potential to perform poorly and possibly lose value in a bull market. However, if the assumptions prove accurate, they could potentially yield returns that surpass the market.
Conclusion
Value funds are equity investment funds that purchase shares of companies at a discount to their real value. Value funds are attractive to risk-taking investors with extended investment horizons. Value mutual funds take longer to provide returns than other types of mutual funds. So, make sure the one you choose for your portfolio suits your overall financial objectives. You can explore a wide range of funds on trusted mutual funds and ELSS app like Axis MF. The app enables you to invest in several mutual funds. Your preferred method of investing in these funds can be a lump amount or a systematic investment plan (SIP).
Note: Views and opinions contained herein are for information purposes only and should not be construed as investment advice/ recommendation to any party or solicitation to buy, sale or hold any security or to adopt any investment strategy. It does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. The recipient should exercise due caution and/ or seek professional advice before making any decision or entering into any financial obligation based on information, statement or opinion which is expressed herein.
Statutory Disclaimer: Axis Mutual Fund has been established as a Trust under the Indian Trusts Act, 1882, sponsored by Axis Bank Ltd. (liability restricted to Rs. 1 Lakh). Trustee: Axis Mutual Fund Trustee Ltd. Investment Manager: Axis Asset Management Co. Ltd. (the AMC). Risk Factors: Axis Bank Limited is not liable or responsible for any loss or shortfall resulting from the operation of the scheme. No representation or warranty is made as to the accuracy, completeness or fairness of the information and opinions contained herein. The AMC reserves the right to make modifications and alterations to this statement as may be required from time to time.
Past performance may or may not be sustained in future.
Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.