A value mutual fund is a type of equity fund that invests in low-value stocks. For example, shares that trade lower than the company fundamentals suggest are considered undervalued.
These shares could be of well-established firms with significant market experience. The aim of investing in value fund is to reap gains when the stocks grow over time. Thus, value investing involves picking shares that trade below their intrinsic value but offer robust growth prospects in the long run.
Billionaire investor Warren Buffett could be one of the biggest advocates of value investing.
As the name suggests, value stocks offer good bargains. Their unique selling point is the future growth potential. However, stock selection could be easier said than done. As in other asset classes, it requires a systematic study of the company fundamentals and performance. Although fund houses conduct diligent research, you can also do it before selecting a good fund.
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 emerging, fast-growing companies.
Stocks in a value fund could represent businesses/undervalued assets across the market spectrum--large, mid, and small caps. The Nifty Value Index offers an insight into the performance of value funds.
Value funds appeal to investors because they invest in companies with a positive track record in dividends, earnings, sales, etc. These companies have solid fundamentals but low share prices.
Hence, value funds are ideal for investors looking to diversify their portfolios for long-term goals.
Investors with a long investment horizon could explore them since these funds invest in underperforming assets but are likely to perform better in the long run. Value funds may also provide dividends; hence, they could appeal to those looking for regular side income.
Moreover, value stocks and funds usually outperform during a bear phase; hence, they could compensate for a lackluster performance or losses during a high-growth market phase.
However, mutual fund schemes do not guarantee assured returns. As in other mutual fund schemes, value mutual funds also come with various risks, including a possible risk of default and loss of principal.
