Great investor Warren Buffett swears by the merits of value investing. Value investing is the selection of stocks backed by solid fundamentals and undervalued in the market. Value mutual funds are based on this philosophy. The fund manager focuses on identifying such stocks and waits for their eventual price appreciation. Value mutual funds are often seen as long-term investments that appreciate with time.
Features of value mutual fund
Some of the key features of value mutual funds are:
- Value funds are open-ended equity schemes that invest in the aforementioned types of stocks.
- The scheme assumes that the undervaluation of stocks is temporary, and the company is poised to see a decent rise in its share price in the future.
- Value funds also tend to give a good dividend yield.
- It stresses the intrinsic value of the stocks. The shares it shortlists are undervalued but belong to high-value companies.
- It stays away from the crowd pullers. Value funds avoid stocks that are selling like hotcakes. Instead, it looks for promising shares that most investors are ignoring or overlooking.
Signs of a good value fund
A good value fund would show good returns and performance in the long-term time horizon. If you compare value mutual funds, look for the ones that have consistently delivered handsome returns and have faced market cycles adeptly.
A good value fund is likely to be well-diversified. It may include stocks from all three caps and also different sectors. Undervalued stocks can be in any cap or industry. The value fund scheme’s fund manager will skim through all the listed shares to spot the ones with a value investing future.
Ideal value fund investment
Long-term SIP investment is more crucial in value funds than in any other funds. Since these stocks are undervalued, the investor has to give time to the investment to overcome the undervaluation and start delivering.
Value mutual funds investment must be made by investors who are well informed about the macro trends that dictate the industry and the market. They must have adequate risk appetite as there is an element of risk attached in investing in unnoticed shares. Ideal value fund investment is also the one in which the investor has the patience to see off the gestation period of the stock.
Why do value fund stocks exist?
Despite the mass participation, some stocks remain undervalued in comparison to the company’s worth. This is because of market inefficiencies that lead to the trading of shares below their fair price. Once the market inefficiency gap is bridged, the price of the share is market-corrected. And it is the duration between the identification of the stock till its market correction that a value fund reaps the benefits.
Conclusion
If you are looking to reap the benefit of value fund investing, start a SIP using the Tata Capital Moneyfy app. Through the Moneyfy app, you can find out the most valued of all the value funds and start some wise investments of your own.
