Value Mutual Funds

Disclaimer: Mutual Fund investments will be subject to market risks. Any mutual fund listed in the document does not guarantee fund performance or its underlying creditworthiness. Do read the mutual fund document thoroughly before investing. Specific investment needs and other factors have to be taken into account while designing a mutual fund portfolio.

Who should invest in Value Mutual Funds?

Value funds are any stock funds on which investors are paid a dividend amount and the most common objective behind investing in a value fund is for receiving yields or income. They are hence, also referred to as 'income funds' as most investors wish to receive dividend payments as an income source and which is why many retired people opt for this kind of investment.

Advantages of Value Funds

In a volatile market environment, value funds offer greater risk-return proposition and in the recent times, has performed quite well as an investment option. Here are a few more reasons why Value Funds are good in an investment portfolio:

1. Most mutual fund portfolios focus on growth-oriented funds. Including value funds in your portfolio helps diversify your investments and ensure that all your eggs are not in the same basket.
2. Value funds are a low-risk investment and add stability to your portfolio. Since they consist of stocks that are not part of the regular market upheaval, they cushion your portfolio from a sudden market topple.
3. Value funds usually grow steadily irrespective of the fluctuations in the market. It is a sound investment method at times of a bearish market, when fund managers can buy stocks at a low price and sell them later at higher prices as the market starts bouncing back. .
4. Value funds are good for investors who are looking for a slow and steady growth rather than quick growth in their portfolio, and also for the new entrants to the mutual fund market who want a safe investment venue.

Risks of Value Funds

1. It is possible that some of the undervalued stocks present in the value fund may not appreciate at all, and had false alarms on potential. In such a case, the fund manager may have to sell off those stocks after a long wait at a loss. This is called the 'value trap'.
2. The slow growth of value funds can be frustrating. It may be years before certain stocks see a growth true to their potential. Therefore, value funds require a lot of time and patience.
3. In a growth-driven market, higher-priced stocks are constantly traded more than the undervalued shares, thereby devaluing the shares further. Value funds tend to underperform because of insufficient investment in the high-valued funds.

Though there are risks associated with value funds, their advantages outweigh the risks and hence, experts recommend investors to at least invest 25% of their equity portfolio on value funds.

A fund manager researches the market carefully to identify stocks that may be currently trading at low prices and are being overlooked, but have an inherent value that has not been realised yet. Therefore, while investing in a value fund, it is always advised that investors seek the guidance of a mutual fund advisor/manager. Based on that, the investor may choose to have a value fund in their portfolio both as a safety cushion and to add diversity to his/her portfolio.