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What are Value Mutual Funds

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03 Aug 2023

Introduction

Fund managers adopt diverse investment styles, enabling efficient allocation of the scheme corpus. Among the commonly used strategies are growth, contrarian, and value. These give rise to Growth Funds, Contra Funds, and Value Funds. 

In this blog, we will learn in detail about value mutual funds, their key aspects, and their features. 

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What are Value Mutual Funds?

SEBI categorizes Value Funds as those adopting the value investment strategy for portfolio stocks. Value investing contrasts growth investing, which focuses on undervalued stocks selected through fundamental analysis. Value Mutual Funds invest in such undervalued stocks, anticipating their future appreciation. 

Notable investors like Warren Buffett and Benjamin Graham follow this strategy, capitalizing on market inefficiencies. Though they may seem less attractive initially, value stocks hold immense long-term growth potential. 

What are the Benefits of Value Mutual Funds?

The benefits of Value Mutual Funds are as follows:

  • These funds focus on undervalued stocks and ensure resilience during market downturns. 
  • Spanning across overlooked economic sectors, they boost market confidence in underperforming stocks. 
  • Value investing, driven by stocks traded below intrinsic value, generates profits independently of market productivity. 
  • They consistently outperform Growth Funds, offering the potential for substantial returns. 

Who can Invest in Value Mutual Funds?

Value Mutual Funds cater to different types of investors seeking wealth generation through a combination of growth and value investing. For those finding it overwhelming to identify good value stocks and stay aware of market trends, Value Funds provide an excellent alternative. 

With a long investment horizon, Value Funds suit individuals looking to capitalize on underperforming stocks’ long-term potential based on intrinsic value. Moreover, investors with high exposure to growth stocks turn to value funds for stable returns across market cycles. 

What are the factors to consider before investing in Value Mutual Funds?

Before investing in Value Mutual Funds, consider these factors:

  1. Diversification: Opt for funds with diversified investment options across market caps and sectors to mitigate risk exposure and enhance portfolio performance. 
  2. Past Performance: Analyze the fund’s track record over the past five years to gauge its consistency in achieving objectives through market cycles. 
  3. Investment Horizon: Stay invested for 3-5 years for optimal returns, allowing undervalued stocks to realize their potential.

Conclusion 

Value funds, as equity funds, target undervalued company shares. It attracts aggressive investors with a long-term vision. So, before adding a value mutual fund to your portfolio, ensure it aligns with your financial goals, considering the time needed for returns. Whether through lump sum or SIP, choose a preferred investment mode wisely to harness the potential of these funds effectively. 

 

Related Blogs: Are PSU Funds A Good Investment Option? | What Are The Rights Of Accumulation | Decoding ESG Investing: The Future is Green | Who Is A Chartered Mutual Fund Counselor (CMFC)?

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