Value funds primarily work on the principle of value investing which has been widely promoted by ace investor Warren Investor. Now as this mutual fund category solely revolves around the principle of value investing, let us know in brief about this investment philosophy. This is an investment approach wherein investors hunt for the stock that offer high dividend yield or below average price to earnings (P/E) or price to book (P/B) ratio.
So, value mutual funds also work on similar lines and look to pocket in stocks that are currently trading lower but have long term growth prospects.
Where do value mutual funds invest and how do these work?
Without any restriction on the sector or market cap for that matter, these funds make a basket of securities that are relatively cheaper but are good indeed. The rationale for including such stocks is primarily that these stocks are undervalued currently owing to some of the temporary factors but show prospects of rising higher and providing returns compared to similar industry players as and when valuations come to par.
Also, herein some of the neglected or overlooked sectors can also be targeted and so in general more time can be taken to produce returns. These mutual funds may thus provide a push to even underperforming scrips.
Who should invest in Value Equity Mutual Funds:
These value equity mutual funds are typically for those investors who want to earn a higher return than typical equity funds and fall in the discerning category with sound knowledge on macro and stock fundamentals can take a bet.
Top Rated and Top Performing Value Funds
|Value Mutual Fund||Rating||Fund Size||SIP 1-year return in % (absolute)||3-year return in %||5-year return in %|
|IDFC Sterling Value Fund - Regular Plan - Growth||CRISIL 5 star rated fund||Rs. 3601 crore||46.01%||62.32%||66.36%|
|UTI Value Opportunities fund-Direct Plan-Growth||CRISIL 4 star rated fund||Rs. 5916 crore||27.19%||48.14%||59.76%|
|ICICI Prudential Value Discovery Fund||CRISIL 4 star rated fund||Rs. 19,182 crore||26.50%||46.20%||52.00%|
1. IDFC Sterling Value Fund - Regular Plan - Growth:
Introduced in the year 2013, this fund has the benchmark as Nifty 50. The fund's expense ratio for the direct plan is 0.93 percent. Majorly the fund is invested into small cap stocks. Exit load for the scheme has been decided at 1 percent in case of early redemption.
Investors can start their value fund journey by starting a SIP for as less as Rs. 100 and for lump sum investment they will need to put out Rs. 5000.
Top holdings of the fund include Deepak Nitrite,JK Cement, JK Cement, Gujarat Gas, KEC International etc.
2. UTI Value Opportunities fund-Direct Plan-Growth:
This is another an old scheme wherein investors can think to add up their wealth. The fund over the 1-year tenure has offered a return of 58.6% better than the benchmark. Nonetheless, the expense ratio of the fund even for the direct plan is on the higher side at over 1 percent.
With most of the exposure diverted to the large caps, mutual fund risk-o-meter has classified the fund to be moderately risky. Further within the large cap space, the fund is more inclined towards the financial space and some of the fund's top holdings comprise ICICI Bank, HDFC Bank, Infosys, Axis Bank, Bharti Airtel etc.
SIP in the fund can be started for as less as Rs. 500 while for lump sum investment, sum of Rs. 5000 shall be put into the scheme.
3. ICICI Prudential Value Discovery Fund:
This value fund invests in a mix of equities and government securities being more titled towards the large cap. Over a 1-year tenure, the scheme has underperformed the benchmark with return of 55%. SIP here again can be started for as less as Rs. 100. The value equity fund charges 1.29% as expense ratio i.e. near to what value funds charge.
Investment in the fund have been doubled in every 2 years. Another plus point of the fund is that it has been able to trim losses by a significant amount in case of falling markets.
The fund is majorly invested across energy, technology, financial, healthcare and auto sectors and likewise its 5-top holdings are Sun Pharmaceutical, Mahindra & Mahindra Ltd., Infosys, Bharti Airtel., National Thermal Power Corp. Ltd..
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