SEBI defines Value funds as “An open-ended equity scheme following a value investment strategy.” Value funds follow the principle of value investing. They invest in shares of companies which are trading at a considerable discount to its intrinsic valuation. There can be a number of reasons for these companies to be undervalued in the market. However, over the long term, these stocks present good investment opportunities. Thus these stocks help investors follow the principle of “Buy Low Sell High“. Value investing is extremely popular in the USA and great investors like Warren Buffet follow value investing rigorously.
Best Value Funds in 2019 – 2020
Here is a list of Upwardly’s pick of the best value funds in the market right now.
|Fund||1-Year Return||3-Year Return||5-Year Return||Invest|
|Tata Equity P/E Fund||0.71%||19.25%||20.54%||Invest|
|L&T India Value Fund||-2.00%||15.07%||21.78%||Invest|
|HDFC Capital Builder Value Fund||4.92%||16.57%||17.24%||Invest|
|ICICI Prudential Value Discovery Fund||3.82%||10.84%||17.36%||Invest|
|IDFC Sterling Value Fund||-5.40%||17.35%||18.37%||Invest|
Tata Equity P/E Fund follows the value-conscious style of investing. The scheme aims to invest at least 70% of its assets in companies with lower P/E than BSE Sensex. Up to 30% of its assets are invested in well-researched growth stocks. The fund has outperformed its category by 3-4 percentage points and the benchmark by 3-7 percentage points in the 3 and 5-year returns. The fund gave 19.30% (annualized) return since its inception in 2004. A SIP of ₹5,000 p.m. in this fund started 5 years ago is worth ₹4.20 lakhs now.
The L&T India Value Fund invests predominantly in undervalued stocks. They focus on the fundamentals of the stocks and concentrate on long-term wealth creation than the short term. It invests in stocks across sectors and market capitalizations with a strong value bias. The fund has outperformed its category by 4 percentage points and the benchmark by 6 percentage points in the 3 and 5-year returns. It fund gave 14.76% (annualized) return since its inception in 2010. A SIP of ₹5,000 p.m. in this fund started 5 years ago is worth ₹4.08 lakhs now.
The fund invests 50% of its assets in companies with lower P/E than NSE 500 Index. It also invests in the hybrid securities viz. units of REITs and InvITs for diversification which is subject to necessary stipulations by SEBI from time to time. The fund has outperformed its category by 2-3 percentage points and the benchmark by 2-3 percentage points in the 3 and 5-year returns. It gave 14.46% (annualized) return since its inception in 1994. A SIP of ₹5,000 p.m. in this fund started 5 years ago is worth ₹4.15 lakhs now.
The fund through its discovery process aims to invest in stocks which are trading at discount value to their intrinsic value. The manager follows a process of Discovery which involves identifying companies that are well managed, fundamentally strong, and are available at a price, which can be termed as a bargain. The fund has outperformed its category by 0.5 percentage points and the benchmark by 2 percentage points in the 5-year returns. The fund gave 20.09% return since its inception in 2004. A SIP of ₹5,000 p.m. in this fund started 5 years ago is worth ₹3.76 lakhs now.
The focus of IDFC Sterling Value Fund has been on building a portfolio of Leader/Challengers and Emerging businesses with an emphasis on bottom-up stock selection. Half of its portfolio consists of companies that market leaders in the Non-Nifty sectors (like Tyres, Bearings) or Top Challengers in the Nifty sectors (such as FMCG, Banks). The other half of the portfolio focuses on Emerging Businesses. The fund has outperformed its category by 1-2 percentage points and the benchmark by 1-3 percentage points in the 3 and 5-year returns. The fund gave 15.95% (annualized) return since its inception in 2008. A SIP of ₹5,000 p.m. in this fund started 5 years ago is worth ₹4.01 lakhs now.
Why Invest in Value Funds?
Value funds provide a good investment opportunity by investing in undervalued stocks. Based on sheer performance, undervalued stocks do not look as exciting as growth stocks. However, value stocks have a high potential to grow. By holding these stocks for a long-term, the fund managers expect to earn handsome returns from these stocks when their value is realized by the market.
Lower downside: Value funds tend to have lower downside than the overall market (growth-oriented funds) as they focus on stocks trading at a discount. These stocks have a lower correlation with the broad markets compared to growth stocks. This reduces the Value at Risk for investors in value funds.
Diversification: Value funds offer diversification to a portfolio which is majorly filled with growth-oriented stocks.
Proven Strategy: Value investing has proven itself over time and is considered a successful strategy globally in the long term. This strategy has given good returns across market cycles in the long term.
Investors are recommended to have a minimum of 10% of their portfolio in value funds. This is because they offer diversification benefits to your portfolio and they tend to have a lower downside than growth-oriented funds.
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