Value mutual funds are a type of equity fund that focuses on buying shares of companies that are currently undervalued. These funds use a strategy known as value investing, where the fund manager picks stocks that are trading at a price lower than their intrinsic value. This strategy works on the belief that the stock market often misjudges the real value of a company’s shares in the short term. However, when the market corrects itself over time, these undervalued stocks grow in value, resulting in potential profit for investors.
The concept of value investing gained massive popularity thanks to world-famous investors like Warren Buffett, who proved that buying undervalued stocks can be a very profitable strategy. Today, many mutual funds in India use this approach, and the top 10 value mutual funds have consistently outperformed in the last five years.
Key Features of Value Mutual Funds
- Investing in Undervalued Stocks: Value funds hunt for stocks that are currently trading below their real worth. Fund managers use deep financial analysis to identify companies that are fundamentally strong but are overlooked by the market.
- Long-Term Wealth Creation: The main objective of value funds is to deliver good returns over the long term. They are designed to give investors an opportunity to benefit from price corrections when the market realizes the real value of these stocks.
- Low Risk and Stable Returns: Value funds generally invest in well-established companies that have stable earnings. This makes them less vulnerable to market fluctuations compared to other types of mutual funds.
- High Return Potential: Historically, value funds have provided better returns than growth funds because they capitalize on market inefficiencies. Once the undervalued stocks rise to their true potential, investors can enjoy significant returns.
- Diversification for Risk Reduction: By spreading investments across different sectors and industries, value mutual funds reduce the risk for investors while aiming to provide inflation-beating returns.
Top 10 Value Mutual Funds in India and Their Impressive Performance
The top 10 value mutual funds in India have consistently delivered strong returns. Over the last five years, these funds have managed to triple investors’ money, providing returns ranging from 25% to 30%. Here’s a breakdown of the top performers:
- JM Value Fund
- 5-Year Return: 30.84%
- AUM: ₹1,078.59 crore
- ₹1 lakh invested 5 years ago is now worth ₹3.83 lakh
- Bandhan Sterling Value Fund
- 5-Year Return: 30.28%
- AUM: ₹10,545.82 crore
- ₹1 lakh invested 5 years ago is now worth ₹3.83 lakh
- HSBC Value Fund
- 5-Year Return: 29.04%
- AUM: ₹13,876.01 crore
- ₹1 lakh invested 5 years ago is now worth ₹3.57 lakh
- ICICI Prudential Value Discovery Fund
- 5-Year Return: 28.95%
- AUM: ₹50,518.41 crore
- ₹1 lakh invested 5 years ago is now worth ₹3.56 lakh
- Templeton India Value Fund
- 5-Year Return: 28.95%
- AUM: ₹2,263.18 crore
- ₹1 lakh invested 5 years ago is now worth ₹3.56 lakh
- Nippon India Value Fund
- 5-Year Return: 28.94%
- AUM: ₹8,842.50 crore
- ₹1 lakh invested 5 years ago is now worth ₹3.56 lakh
- Tata Equity PE Fund
- 5-Year Return: 26.14%
- AUM: ₹9,010.26 crore
- ₹1 lakh invested 5 years ago is now worth ₹3.19 lakh
- UTI Value Fund
- 5-Year Return: 25.85%
- AUM: ₹10,591.25 crore
- ₹1 lakh invested 5 years ago is now worth ₹3.15 lakh
- Aditya Birla Sun Life Pure Value Fund
- 5-Year Return: 25.57%
- AUM: ₹6,623.55 crore
- ₹1 lakh invested 5 years ago is now worth ₹3.12 lakh
- Union Value Fund
- 5-Year Return: 25.37%
- AUM: ₹293.03 crore
- ₹1 lakh invested 5 years ago is now worth ₹3.09 lakh
Who Should Consider Investing in Value Mutual Funds?
Value mutual funds are ideal for those who are looking to invest for the long term and are comfortable with some amount of market risk. Since these funds invest in undervalued stocks, they have the potential to offer high returns, but only if investors are willing to wait for the market to correct itself.
These funds are particularly suitable for individuals who:
- Want to build wealth over a longer period, typically five years or more.
- Are not looking for quick gains but are patient and can stay invested for a long time.
- Are comfortable with the risk associated with equity investments.
- Want to benefit from market inefficiencies by investing in undervalued companies.
- Prefer a diversified investment option that lowers risk by spreading capital across multiple sectors.
Things to Keep in Mind Before Investing in Value Funds
While value funds have the potential to deliver excellent returns, it’s important to remember that past performance is not a guarantee of future returns. Market conditions change, and the performance of a fund is subject to market risks.
- Risk of Market Downturns: Even though value funds are generally more stable than growth funds, they are still exposed to market risks because they invest primarily in stocks. In times of a market downturn, these funds can also suffer losses.
- Long-Term Investment Horizon: Value mutual funds are best suited for investors who are willing to commit their money for at least five years. If you are looking for short-term gains, these funds may not be the right fit for you.
In conclusion, value mutual funds can be a great option for investors who believe in the long-term potential of the stock market and are ready to be patient while their investments grow over time. The top 10 value mutual funds in India have shown excellent performance over the last five years, providing a solid option for those seeking stable, long-term returns.
