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What is Value Fund? Meaning, Benefits & More

Introduction of Value Fund

Value investing in stocks focuses on buying undervalued stocks and holding them for the long-term. Read further to know why this type of investment is popular among diligent investors.

What is Value Fund?

Value funds are open-ended equity schemes that follow a value investment strategy. This type of fund invests in shares of the companies and are traded at discounted rates. The primary reason for investors to select such stocks is because they may be undervalued due to temporary factors, but these stocks provide higher returns in the long run. Value funds have a high dividend yield.

Who can invest in Value fund?

  • Investors who know macro trends

  • Aggressive investors who are ready to take selective bets for higher returns

  • Those who are looking for a long-term investment that can grow steadily with no unexpected gains

  • Investors who have patience in value investing

Note that such investors should be prepared to digest moderately to high losses even when the market performance is better.

Benefits of Value Fund

  • With value investing, you get exposure to a diversified portfolio wherein the assets allocations are mostly in growth-mutual fund schemes

  • Since value funds investment strategy focuses on undervalued stocks, they are less vulnerable

  • The shares in Value Fund spans across all economic sectors, which are overlooked. This boosts the market confidence of the underperforming stocks.

Value investing selects only those stocks that are traded less than their intrinsic value and generate profits without worrying about market productivity. It is for this reason investors like Warren Buffet choose value funds. They are known to outperform growth funds. Here’s how you can get started with it:

  • Intrinsic value: This represents the actual value of stocks in the market. There are times when the market conditions lead to undervaluation of stocks. Investors look for such undervalued stocks and invest in it, considering that it belongs to a high-value company.

  • The margin of safety: Suppose a stock’s intrinsic value is Rs.200 and it is trading at Rs 100, then the remaining Rs.100 gives you a confidence that you make much more profits than the rest. This is known as the margin of safety, and this is the major contributor to making profits.

  • Mob mentality: One thing that differentiates a value investor from the rest is that he/she will never invest in stocks where a majority of people are investing. Not following the mob mentality is the reason why Warren Buffet is the most successful investor have built large corpus. You should invest in stock by finding its actual value and invest in it when everyone else is ignoring it.

How to invest in Value Funds?

You can invest in the fund type in two ways- Offline and Online.

Offline Investment In Value Funds

  • Visit the nearest fund house office

  • Keep these documents in hand including – Cancelled Cheque, address proof, identity proof, passport size photo, PAN Card, KYC documents.

  • If you cannot locate a fund house, you can also approach a broker

  • If you’re investing in value fund through a broker, then you will have to pay brokerage charges along with the investment amount

Online Investment In Value Funds

  • Visit mutual fund aggregator website or search for asset management companies (AMC) online and look for value funds

  • Compare the details of the similar schemes

  • Estimate the fund’s future value

Value fund investment is all about picking a trustable company, knowing the intrinsic value of stocks and being a diligent investor to make profits and create wealth. So, when are you starting value investing?