What is a value fund? How do value funds differ from other mutual funds?

How are value funds different from other funds

How does a value fund differ from other funds

Value investing relies on the theory that there are undervalued stocks in the market, and if you are able to find those stocks, you can hold them for the long term to get the maximum return. Read the below article to understand why investors prefer value investing to make consistent long-term money.

Related: Different Types Funds Available Under Mutual Funds.

What is a Value Fund?

Value funds invest in equities of companies that have deep value. These funds invest in company shares that are traded at a discount. The key reason why investors buy these stocks is that they may be discounted owing to short-term events, but they will deliver better long-term returns. High-dividend yielding stocks are an important part of value funds.

Related: Best Dividend Paying Stocks In India

Who is eligible to invest in the Value fund?

  • Investors who understand macro trends and can understand when to invest in value funds.
  • Investors who are risk-takers and willing to bet on specific areas to earn higher returns.
  • For people looking for long-term investments that increase steadily without unexpected gains.
  • Investors who stay patient.

Investors in this market should be ready to absorb moderate-to-severe losses, even when the market is performing well.

What are the benefits of investing in Value Fund?

  • Value investing lets you be exposed to a diversified portfolio and comes under the ambit of growth-mutual fund schemes.
  • Since the value fund investment strategy concentrates on undervalued stocks, they are less susceptible to market downturns.
  • The stocks included in Value Fund spans all sectors of the economy and are often not widely discussed. This means that these stocks are out of favour with the market and thus can offer a better return potential when the market takes cognizance of these stocks.

Value investing focuses on companies that are traded for less than their intrinsic value and earn gains without worrying about the market's efficiency. Therefore, investors like Warren Buffet choose value funds. They have been known to outperform growth funds. Here's how to start:

  • Intrinsic value: Intrinsic value of a stock is the value of the stock as per the intrinsic assets that the company owns. It is like buying a stock with a value of Re 1 at Re 0.5.
  • The margin of safety: It refers to the intrinsic undervaluation of the stock. Suppose that the stock is valued at Re 0.5 with a value of Re 1; there is less chance of the stock going to a lower value because it is already undervalued to the intrinsic value.
  • Mob mentality: A value investor differs from other investors in that he or she does not invest in stocks that the majority of investors are purchasing. If you purchase stocks that are out of favour, you can benefit a lot when the market starts to favour that stocks.

Related: 8 Investments Strategies From Warren Buffet For Beginners 

What are the best ways to put money into Value Funds?

It is possible to invest in this fund in two ways: Offline and online.

Offline Investment in Value Funds

  • Find the nearest office of the fund house.
  • Keep these documents handy, such as a cancelled cheque, address identification proof, proof of identity, passport-sized photo, PAN card, and KYC documents.
  • If you're unable to find an investment house, you could seek out an agent.
  • If you're investing into value funds through a broker, you'll have to pay brokerage fees in addition to the investment amount.

Online Investment in Value Funds

  • Visit the website of a mutual fund aggregator or search for companies that manage assets (AMC) on the internet and search for funds that are value funds.
  • Check out the specifics of similar schemes.
  • Determine the value of the fund's future.

Conclusion:

Value fund investing is all about selecting a reliable firm, understanding the intrinsic worth of stocks, and being an experienced investor to generate profits and build wealth. Value fund investing is a good way to create long-term wealth while managing the downside risk.

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