Value Fund

Value investing made a major comeback in 2025. After a long time of being behind growth funds, value funds are finally on par. This was caused by increasing interest rates, changing sectors, and global de-risking trends. Investors are being more careful. They now prefer stocks with stable earnings, low valuations, and solid balance sheets.

For example, the ICICI Prudential Value Discovery Fund and UTI Value Fund have delivered CAGR returns between 19% and 24% over the past five years, outperforming many aggressive growth-oriented funds in volatile markets.

The current market environment characterized by elevated valuations in growth sectors, geopolitical tensions, and a global economic slowdown has prompted investors to adopt value-based strategies for stability and improved risk-adjusted returns.

A value stock is typically:

• Undervalued by the market compared to its intrinsic worth
• Trading at low price-to-earnings (P/E) or price-to-book (P/B) ratios
• Exhibiting stable cash flows and strong fundamentals
• Often overlooked due to temporary sectoral weakness or cyclical downturns

Value funds aim to buy such companies before their true worth is recognized by the market, allowing investors to benefit from price appreciation and dividends over time.

• Contrarian Strategy: Value funds often invest in companies or sectors that are currently out of favor. This approach may lead to underperformance in bull markets but usually shines during periods of correction or mean reversion.
• Lower Valuation Risk: Since these funds invest in undervalued companies, the downside risk is generally lower compared to high-P/E growth stocks, especially during market crashes.
• Long-Term Orientation: Value funds may take longer to deliver returns, as their strategy depends on the re-rating of undervalued assets. Patience is key for investors in this category.
• Diversified Sector Exposure: Value funds typically invest across a range of sectors, including energy, financials, FMCG, manufacturing, and capital goods, avoiding overexposure to high-growth, high-valuation sectors such as technology.

• Capital appreciation with reduced downside risk
• Attractive entry points during market corrections
• Better performance during volatile or bearish markets
• Suitable for long-term wealth building
• Good fit for conservative to moderate risk profiles

The value category has delivered strong performance over the last few years, particularly following the COVID-19 recovery and during the 2023–24 market corrections.

• The ICICI Prudential Value Discovery Fund has delivered a CAGR of around 21–24% over the past 5 years.
• UTI Value Fund and HDFC Capital Builder Value Fund have also provided CAGR returns in the range of 17% to 22%.
• A ₹10,000 monthly SIP over 10 years in top-value funds would have grown to ₹30–35 lakh, depending on the fund and the entry period.

These returns, although not as flashy as those of small or mid-cap funds, come with lower volatility and better downside protection, making them a solid core holding.

• High-growth sectors drive underperformance in bull markets
• Long gestation periods—value stocks may take time to deliver returns
• Requires patience and confidence in the investment strategy
• Not ideal for short-term investors or those seeking aggressive gains

Value mutual funds are best suited for:

• Long-term investors with moderate risk tolerance
• Those seeking stability and resilience in volatile markets
• Investors who prefer low-valuation, dividend-paying companies
• Individuals looking to diversify away from momentum or growth-heavy portfolios

It's an excellent option for building a core portfolio that can weather market fluctuations while providing steady returns.

Since value funds are classified as equity mutual funds, their taxation is the same:

• Short-Term Capital Gains (STCG): 15% tax if sold within one year
• Long-Term Capital Gains (LTCG): 10% on gains above ₹1 lakh after one year
• Dividends: Taxed as per the investor's income tax slab, with TDS at 10% if the dividend exceeds ₹5,000 annually