- About Coverfox
A value fund is one that follows a value investing strategy. Here, the funds parked in stocks that are considered to be undervalued in price on the basis of fundamental characteristics. In the market, one can find a number of companies whose stock price is not the best indicator of their worth. They are deemed to be intrinsically more valuable, and have tremendous potential to grow. The intrinsic value of such companies is derived by taking into consideration their financials, business model, management team, competitive position, and other such factors. When the market value of a firm is less than its intrinsic value, then it is said to have ‘value’.
On buying a stock at a high safety margin, the risk gets mitigated to some extent, while boosting the return potential. There are only a few equity funds that apply this strategy. Many funds today have a growth bias, which means they park money in stocks of healthy earnings growth visibility, with lesser focus on the price of stock. As such, these funds at times have greater risk. Value funds come with a better risk-reward proposition, especially during a heated market environment.
Value and growth are fundamental approaches to stock investing, followed by fund managers. A value investor purchases undervalued stocks with a potential for appreciation, but are generally ignored by the investing community. Growth investing deals with looking for companies that have a potential to grow quicker than others. The optimism is seen in the premium valuation commanded by the market price of such firms.
Growth funds have a higher risk when compared with value funds. This is due to the fact that growth funds rely heavily on the stock market, and should the stocks crash, the returns will plummet. Additionally, it has been observed that in times of recession, value funds perform relatively better, or at least manages to stay afloat longer, than growth funds. Value funds offer steady returns over a longer duration, whereas growth funds could give higher returns, both in the short as well as long term.
An ideal investment portfolio is one that has both- value funds and growth funds. Value funds help to add stability to the investor's portfolio and balance out the risks, while growth funds allow investments to grow.
Here is a look at some of the reasons why an entity must consider investing in value funds:
Value funds help to diversify portfolios where the major part of funds is likely to be growth-oriented.
They have delivered good returns over the long-term.
During a market downturn, value investing tends to ensure a lower downside since it focuses on cheaper stocks and those that may be out of favour. Such funds become less vulnerable as they aren’t invested in stocks with high expectations associated with them.
Value investing is seen to offer a better risk-reward profile in an overvalued or volatile market.
Worldwide, value investing is considered as among the most successful equity investment strategies. Financial experts have stated that value investing has worked quite well in India during recent years.
The below table contains some of the top value/contra funds in India:
Returns (%) - data as on Nov 19, 2019
|Scheme Name||Rank||6 mth||1 yr||3 yr|
|Kotak India EQ Contra Fund||Rank 01 Sep 30, 2019||5.45||10.58||15.35|
|Invesco India Contra Fund||Rank 02 Sep 30, 2019||5.30||6.73||14.63|
|Nippon India Value Fund||Rank 02 Sep 30, 2019||3.62||6.21||11.72|
|UTI Value Opportunities Fund||Rank 02 Sep 30, 2019||6.61||9.65||11.15|
|Tata Equity PE Fund||Rank 03 Sep 30, 2019||5.41||6.25||10.91|
|HDFC Capital Builder Value Fund||Rank 03 Sep 30, 2019||-0.82||0.29||10.02|
|L&T India Value Fund||Rank 03 Sep 30, 2019||2.88||2.97||8.67|
|ICICI Prudential Value Discovery Fund||Rank 03 Sep 30, 2019||0.93||-0.50||6.10|
|SBI Contra Fund||Rank 03 Sep 30, 2019||-1.34||-1.37||4.44|
|IDFC Sterling Value Fund||Rank 04 Sep 30, 2019||-4.01||-6.75||8.71|
|Templeton India Value Fund||Rank 04 Sep 30, 2019||-0.90||-1.25||6.35|
|Indiabulls Value Fund||Rank 04 Sep 30, 2019||1.12||-3.14||3.43|
|Aditya Birla Sun Life Pure Value Fund||Rank 05 Sep 30, 2019||-4.42||-9.68||2.30|