Invest in Value Mutual funds to gain in various market conditions

Invest in Value Mutual funds to gain in all market conditionsInvest in Value Mutual funds to gain in various market conditions

The concept of Value Funds is globally recognized strategy. It is still yet to get complete recognition in India. When you choose a mutual fund, you generally choose for growth mutual funds. However such funds would go with market condition. Do you want to invest in mutual fund scheme which goes with market condition but not with the similar pace or speed? It could be in upside or downside. Then you should invest in Value Mutual funds.

What are value Mutual funds?

Value funds are those which invest in growth oriented stocks. These are undervalued stocks which are not the favorite for investors. Value funds opt for stocks with low valuations, but which are expected to turn in few years. Value fund managers also look high dividend paying stocks as value stocks as they provide high financial stability.

Also read: Should you invest in Opportunity Mutual Funds

Benefits of investing in Value Mutual Funds

1) Protection in downturn: These funds do not invest in growth stocks. Investors would have some expectations in growth stocks, hence during market downturn, they would get beaten up. However Value stocks are not favorite of investors, hence there are fewer chances that their prices fall. Value funds which invests in value stocks could see little downside due to this strategy.

2) Portfolio Diversification:  It helps for an investor to do portfolio diversification. Investing in growth stocks may be good, but investing in growth oriented stocks would help for portfolio diversification as both would not perform in same way. E.g. if you invest in X mutual fund which is growth fund and Y mutual fund which is value fund. When market has grown by say 20%, your growth fund would have also grown by 20% and value fund would have grown by 15%. However let us assume that market has fallen by 20%, your X mutual fund has also fallen by 20%, but your Y mutual fund which is value fund has fallen only by 15%.

3) Globally accepted strategy: The value funds strategy is globally recognized and accepted strategy. These are also not new in India. There are a few mutual fund schemes like Templeton India Growth Fund or ICICI Pru discovery Fund or Templeton India income funds which are already running and tested in various market conditions.

Negative side of Value Mutual funds

1) May not perform well in bull runs: Like growth funds, these value funds may not perform in-line with Bull Run. Investors pays high price for growth stocks during Bull Run. Since value stocks are not investor favorite, they may give less importance. We can take a classic example. ICICI Pru discovery fund is a value fund. In 2007 when there was a bull run, mid-cap has grown by 80%; however ICICI Pru-discovery has grown only 40%. In similar way, subsequent year there was market downtrend where mid-cap stocks has fallen by 60%, however ICICI Pru discovery fund has fallen by 55%. This is a sample example on how value funds would behave different ways in various market conditions in comparison with benchmarks.

2) Takes longer time for recognition: The recognition to value stocks would take longer time, hence your appreciation would happen in long-run. If you are short term investor, do not invest in such value funds.

3) Fund Manager may go wrong: Few times, fund manager may be wrong in choosing a value stock. The stock may fall and may further dip. Finally fund manager have to book loss and finally exit out from such stocks.

Also read: Fixed Maturity Plan (FMP) mutual funds are most tax efficient than bank FD's

Well, all this is fine, than what should be investor strategy?

Investing in Value mutual funds is good strategy which is yet to get full recognition in India. Many large cap funds are including value stocks in their portfolio. You can keep investing in large cap funds to diversify your portfolio. The other strategy could be investing 20% to 25% of your portfolio in such value mutual funds. Some of the value funds which can be looked are ICICI Pru discovery fund, Templeton India growth fund, Quantum Equity fund or blended funds (growth + value) like HDFC Mid-cap opportunities fund or FT India income fund.

Value Mutual funds

Conclusion: If you are looking for a best mutual funds portfolio which should perform well in all market conditions, you should include value mutual funds as part of your portfolio.

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Value Mutual funds


  • Vikas

    Hello Suresh Sir,
    Thanks for reply. But Sir elss tax saving mutual funds are better than ppf and canara robeco tax saver fund is even beats equity mutual funds its last 5 years returns are excellent thats why I choose this fund in my portfolio.

    • Vikas, You are seeing one side of the coin. Today sensex is at 21K. Every one is happy. Many funds which has not been performing well earlier are now shining. What happens if SENSEX falls to 15K ? Do you know how your mutual fund portfolio would get screwed up? These funds would help you to protect from such downside. We should not forget the losses incurred in mutual fund investments in 2007/2008 market crash. Many people even exited from mutual funds during such time. I am not asking you to invest,but if you want to have such protection, consider 1-2 funds from this list in your porfolio.

  • Vikas

    Hi Suresh Sir,
    Please sugest me good larg cap mutual fund for investment.

  • Vikas

    Hi Suresh Sir,
    I m 28 years old. I want to invest for 15-18 years through SIP. I m invested in following funds through SIP. 1) canara robeco tax saver fund growth- rs 1000/-
    2) icici pru discovery growth- rs 1000/-
    3) uti opportunity growth- rs 1000/-
    What is ur opinion about my portfolio? thanks in advance.

    • Vikas, good portfolio. However tax saver you should look only for tax saving option. If I am in your place, I would invest in large cap and diverisifed mutual funds and invest in tax saving funds only for tax purpose and not for growth over long term like 15 years.

  • Manish

    Dear Sir,

    I read your articles from last 1-2 weeks. All are very good and informative.

    I also want to design my portfolio for long run.

    As I am 30 years old, married, one child 2 years old.

    Currently earning 65,000 INR/ month in hand. Monthly Expense 20,000/month. Saving = 40 to 45 K.

     At Present, I have in my portfolio

    1) Asset – One 2 BHK flat in Faridabad, where I am living, Home loan has been fully paid.

    2) Investment – 

    a) PFF- 2.25 Lac up to now

    b) Bank FD – 1 lac , will be ended by 09/2014,for wife name

    c) Religare ncd – 2 lac for 3 year (yearly paid interest type, ended by 10/2015), for wife name

    d) Company FD – 1.5 lac , will be ended by 07/2014, for wife name

    f) Reliance money manager fund – direct growth plan growth option – 1 lac

    3) Insurance – LIC JAVAN Amolaya- 25 lacs( Yearly I shall may 8000 INR as a premium)


    So please advise me where/how much I have to invest MF/Share/Bond/FD/GOLD to growth/diversified in my portfolio in long run.

    Thank you for reading my email


    • Manish, You shared your complete bio-data except your qualification. Just kidding. You invested in either too safe investments like PPF or Bank FD or high risk investmetns like NCD or Company FD. What about moderate risk investments ? You should invest in low risk to moderate risk but to get high return investments. One of the choice is investing in mutual funds. Invest in diversified and large cap funds like FT India growth fund or ICICI Pru focussed bluechip fund or Reliance Equity opps fund. Second is invest in Gold ETF’s. You can pick-up like SBI Gold ETF or R* Shares Gold ETF. My suggestion is invest thru SIP in these MF and ETF’s. I feel you can balance your portfolio in this way. 

  • Vikas

    Hello Suresh Sir,
    Nice article, with the help of this article one can design their portfolio very well.
    Sir such value funds invested in small &it mid cap there fore they are highly risky than large cap or bluechip funds?

    • Thanks Vikas. They need not invest in mid-cap/small-cap. They would potentially look for not so favored stocks which may include even in large cap. I agree there would be some risk invovled. However risk pays. 

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