Value Mutual Funds

Value funds follow the value investing principle where finding the right opportunity before the broader market gives a top edge when it comes to delivering returns. Value funds are open ended equity mutual funds that are undervalued. These funds invest in companies that are fundamentally good and trading less than their intrinsic value.

Value funds are suitable for investors looking to create wealth in the long run and continue investing through different market cycles. These funds offer investors an opportunity to capitalise on growth when the market eventually corrects the pricing.

What are Value Mutual Funds?

Value Funds are a type of equity funds which invest in shares that trade at prices lower than their intrinsic or true values. This means that the fund managers find companies which have strong fundamentals and solid business models with growth prospects but the share price does not really justify the intrinsic value of the company.

In a nutshell, value funds aim to earn capital appreciation by investing in such undervalued stocks that may correct their prices in the future due to improvement in market perception regarding their intrinsic values.

As value investing requires patience, these funds are generally recommended for investors with a long-term perspective on investments.

Features of Value Funds

• Invest in Undervalued Stocks: The portfolio of value funds include companies which can be acquired at an interesting valuation in comparison to their income, asset, cash flow or growth potential.
• Wealth Accumulation Strategy: The strategy is based on utilizing the market trend which will sooner or later discover and appreciate a company's true worth.
• Diversified Stock Portfolios: These funds operate in different industries and different market segments to achieve higher diversification while generating growth.
• Professional Fund Management: Skilled portfolio managers spend lots of time researching and analysing the markets to find undervalued stocks.

How to Invest in Value Funds?

You can invest in value funds by following simple process:

Step 1: Choose investment mode. You can invest through:

• AMC websites
• Online investment platforms provided by stockbrokers
• Mutual fund distributors

Step 2: Choose a suitable value fund.

Step 3: Choose between Systematic Investment Plan (SIP) and Lump sum based on your goal and make investment.

Step 4: Make payment through UPI, netbanking or other available methods.

Why Invest in Value Funds?

• Buying at Quality Stock at an Attractive Price: Value Funds concentrate on companies that are underpriced temporarily by the stock market.
• Benefits of Market Inefficiency: Stock markets have their flaws. They do not price securities efficiently all the time. Value investing aims to profit from this inefficiency.
• Capital Gain Over the Long Run: Markets do not always price stocks accurately. Value investing seeks to capitalise on these inefficiencies.
• Diversified Portfolio Investment: Value Funds can serve as a diversified option alongside growth funds in your equity portfolio.

Taxation Rules for Value Funds

Value funds fall into the category of equity-oriented mutual funds as they invest in underpriced stocks. Hence, value funds are subject to the laws for equity mutual fund taxation.

• Short-Term Capital Gains (STCG): If units are sold within 12 months from the date of purchase, the profits will be considered STCG, which shall be taxed at 20%, with applicable surcharge and cess.
• Long-Term Capital Gains (LTCG): Profits made from selling units after 12 months will be considered LTCG. Profits made on flexi cap funds beyond ₹1.25 lakh in a fiscal year will be taxed at 12.5%, whereas LTCG up to ₹1.25 lakh is tax-exempt.