Mutual fund unlocked: What is a value fund?

Many a time, we wait for the festive season to buy our desired product. That is, we aim to own the same product with the same quality and same durability at a lower price as the festive seasons always comes up with discounts. Then why not do the same with your mutual fund investments, even in the investing world you can have the same approach.

Value funds are a type of mutual funds that offer the same opportunity to the investors. Value funds are the funds which follows the value investing strategy. Value investing strategy invests in the stocks which are undervalued by the market. That is, when the intrinsic value of a company is misjudged or not realised by the market, the price of these stocks will be below its intrinsic value. If the company’s business strategy, revenues, earnings, that is, the fundamental attributes are strong, it is believed the stock will perform well once the market realises the potential of it. Value funds follow the same and these funds invest in the stocks which are undervalued by the market but are fundamentally strong.

But while investing in these funds, investors should remember that a value-based strategy will pay off only over a longer time horizon as it takes a long time for the market to recognise the potential of the stock.

Also in the bull market, then value funds will underperform as such a market the run-up will be in a set of favoured stocks or sectors and which will run up swiftly. Therefore, investing in such funds means investors need to keep patience. These funds are suitable for moderate risk investors.