Want to invest in stocks that are currently undervalued and can grow in the long term? Value funds are one of the best ways to invest in a portfolio of undervalued stocks selected by an experienced fund manager.
A value mutual fund offers an inquisitive opportunity for novice investors and helps in creating a balanced portfolio for long-term goal achievement. This blog will unfold all the details about value funds, including some of the best value funds, pros and cons of investing in them.
What is a Value Fund?
Value funds (one of the types of equity funds) invest a minimum of 65% of their corpus in stocks following a value investing strategy. Value fund means lies in its name, which propels investing in a stock that is trading at a lower price than its intrinsic value.
In value investing strategy, investors generally seek stocks that are trading at a lower price-to-earnings (PE) ratio, price-to-book (PB) ratio, etc. The fund manager selects the stocks after doing a thorough financial statement and valuation analysis, including the study of the current industry scenario.
For example, if stock A is trading at a PE ratio of 10 and its industry average PE ratio is 20, then it is considered an undervalued stock. Over a period of time, the market will derive the stock’s real value, and the investor will gain from the price appreciation.
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Top 10 Value Funds to Invest in 2025
Selecting the right value mutual fund requires analyzing past returns, an expense ratio, and other performance ratios. Here is the list of the top 10 value funds (Regular-Growth) to invest in for the long term:
*(Data as on February 14, 2025)
Details of the 10 Best Value Funds
Here is the insight into the 10 best value funds and how much wealth you can create after 5 years by starting a SIP today:
1. ICICI Prudential Value Discovery Fund
ICICI Prudential Value Discovery Fund NAV is ₹425.68. The minimum SIP amount is ₹100 while the lump sum investment is ₹1,000. The fund’s alpha is 6.80 and beta is 0.81. The top 3 stock allocations of this fund are HDFC Bank, ICICI Bank, and Reliance Industries.
By starting a monthly SIP of ₹1,000 in ICICI Prudential Value Discovery Fund, you can grow your total investment amount of ₹60,000 to ₹1.18 lakhs.
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2. Bandhan Sterling Value Fund
Bandhan Sterling Value Fund NAV is ₹134.80. The minimum SIP amount is ₹100 while the lump sum investment is ₹1,000. The fund’s alpha is 2.37 and beta is 0.96. The top 3 stock allocations of this fund are HDFC Bank, Reliance Industries, and Axis Bank.
By starting a monthly SIP of ₹1,000 in Bandhan Sterling Value Fund, you can grow your total investment amount of ₹60,000 to ₹1.10 lakhs.
3. Nippon India Value Fund
Another one in the list of best value funds is the Nippon India Value Fund and its NAV is ₹202.34. The minimum SIP amount is ₹100 while the lump sum investment is ₹500. The fund’s alpha is 5.33 and beta is 1.04. The top 3 stock allocations of this fund are HDFC Bank, ICICI Bank, and Infosys.
By starting a monthly SIP of ₹1,000 in Nippon India Value Fund, you can grow your total investment amount of ₹60,000 to ₹1.08 lakhs.
4. JM Value Fund
JM Value Fund NAV is ₹88.60. The minimum SIP amount is ₹100 while the lump sum investment is ₹1,000. The fund’s alpha is 8.13 and beta is 0.95. The top 3 stock allocations of this fund are HDFC Bank, Infosys, and ICICI Bank.
By starting a monthly SIP of ₹1,000 in JM Value Fund, you can grow your total investment amount of ₹60,000 to ₹1.05 lakhs.
5. Templeton India Value Fund
The next best value funds is Templeton India Value Fund and its NAV is ₹653.25. The minimum SIP amount is ₹500 while the lump sum investment is ₹5,000. The fund’s alpha is 4.26 and beta is 0.99. The top 3 stock allocations of this fund are HDFC Bank, Reliance Industries, and Axis Bank.
By starting a monthly SIP of ₹1,000 in Templeton India Value Fund, you can grow your total investment amount of ₹60,000 to ₹1.10 lakhs.
6. HSBC Value Fund
HSBC Value Fund NAV is ₹95.60. The minimum SIP amount is ₹500 while the lump sum investment is ₹5,000. The fund’s alpha is 6.26 and beta is 0.97. The top 3 stock allocations of this fund are ICICI Bank, HDFC Bank, and Multi Commodity Exchange Of India.
By starting a monthly SIP of ₹1,000 in HSBC Value Fund, you can grow your total investment amount of ₹60,000 to ₹1.05 lakhs.
7. Aditya Birla Sun Life Pure Value Fund
Aditya Birla Sun Life Pure Value Fund NAV is ₹110.84. The minimum SIP amount is ₹100 while the lump sum investment is ₹1,000. The fund’s alpha is 3.34 and beta is 1.12. The top 3 stock allocations of this fund are Minda Corporation, Infosys, and Mahindra & Mahindra.
By starting a monthly SIP of ₹1,000 in Aditya Birla Sun Life Pure Value Fund, you can grow your total investment amount of ₹60,000 to ₹1 lakhs.
8. Tata Equity PE Fund
Tata Equity PE Fund NAV is ₹309.71. The minimum SIP amount is ₹100 while the lump sum investment is ₹5,000. The fund’s alpha is 4.61 and beta is 1. The top 3 stock allocations of this fund are HDFC Bank, Housing Development Finance Corporation, and Bharat Petroleum Corporation.
By starting a monthly SIP of ₹1,000 in Tata Equity PE Fund, you can grow your total investment amount of ₹60,000 to ₹96,000.
9. UTI Value Fund
UTI Value Fund NAV is ₹153.40. The minimum SIP amount is ₹500 while the lump sum investment is ₹5,000. The fund’s alpha is 2.71 and beta is 0.98. The top 3 stock allocations of this fund are HDFC Bank, ICICI Bank, and Infosys.
By starting a monthly SIP of ₹1,000 in UTI Value Fund, you can grow your total investment amount of ₹60,000 to ₹98,000.
10. HDFC Capital Builder Value Fund
HDFC Capital Builder Value Fund NAV is ₹654.42. The minimum SIP amount is ₹100 while the lump sum investment is ₹100. The fund’s alpha is 2.15 and beta is 1. The top 3 stock allocations of this fund are ICICI Bank, HDFC Bank, and Infosys.
By starting a monthly SIP of ₹1,000 in HDFC Capital Builder Value Fund, you can grow your total investment amount of ₹60,000 to ₹98,000.
Pros of Investing in Value Funds
Value funds provide various benefits for newbie investors which are as follows:
1. Long-Term Growth Potential
Value funds are ideal for long-term investing purposes because they invest in stocks that stand to achieve their true value over a period of time. These stocks tend to hold up in the volatile market because of their strong financials and business model, and positive industry outlook.
2. Diversification
Value funds invest in stocks across sectors and market capitalization, making them ideal to overcome the stock-specific volatility. In contrast to the growth investing style, the fund manager taps the hidden gems in the market that are difficult to tap by an inexperienced investor. So, these funds provide a great opportunity for investors to diversify their portfolios with robust fundamentals.
3. High Returns
Value funds can generate extraordinary returns if the fund manager makes the accurate decision in selecting undervalued stocks. In the long run, the market will react to the company’s growing performance and adjust its stock price accordingly. Hence, a “buy low” and “earn high” strategy will show its results.
4. Balanced Risk
Value funds are protected from downside risk because the invested stocks are already trading at a lower value, making them prone to a major fall. Hence, these funds provide a slight safety margin as compared to other mutual funds that tap growth stocks.
Cons of Investing in Value Funds
While there are several advantages of investing in a value mutual fund, there are some risks that you need to consider as well.
1. Concentration Risk
The fund manager may invest in stocks concentrated in a specific industry (financial services, automobile, or IT) to align the value investing strategy. However, it directly increases the concentration risk in the portfolio, making the funds prone to specific industry scenarios.
2. Persistent Undervaluation
Sometimes, the fund manager selects a stock that is trading currently at a low PE and is expected to surge in the future. However, there is a high risk that the stock may not achieve its true value and fail to generate high returns despite correct analysis of the fund manager.
Taxation Rule of Value Funds
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The short-term capital gains (STCG) earned from value funds are taxed at a flat rate of 20% (units redeemed within 12 months).
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The long-term capital gains (LTCG) are taxed at a rate of 12.5% only if the earnings are more than ₹1.25 lakhs.
Conclusion
Value funds are the type of equity mutual funds that invest in stocks that are trading below their real value but have strong fundamentals to realize their true value. These funds provide the benefits of higher returns, balanced risk, and diversified portfolios, making them ideal for long-term investment.
But while investing in any mutual fund, it is better to do your research and keep your investment objective in mind. Open Demat account with SMC Global Securities and keep investing in stocks or mutual funds like a pro.
Frequently Asked Questions – FAQs
1. What is growth vs value funds?
Growth equity funds invest in stocks that are growing or expected to rise in the future at a faster pace. On the other hand, value funds invest in undervalued stocks that are trading below their true value and are expected to realize their worth.
2. Which value fund is best?
Some of the best value funds to invest in for a long period are Nippon India Value Fund, HSBC Value Fund, ICICI Prudential Value Discovery Fund, etc.
3. What is value and contra fund?
Value funds invest in undervalued stocks that have strong fundamentals and are anticipated to touch their true price. While contra funds invest in stocks that are underperforming and going against the market tides but are expected to rise with higher demand.
Reference:
https://www.amfiindia.com/investor-corner/knowledge-center/SEBI-categorization-of-mutual-fund-schemes.html
https://www.smctradeonline.com/invest/mutual-fund
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