Value Mutual Funds invest in undervalued stocks with the potential for long-term growth. They identify companies trading below their intrinsic value, offering you an opportunity to purchase quality assets at a discount. This strategic approach aims to generate good return over time.
What are Value Funds?
Value Funds are mutual funds that invest in undervalued stocks and capitalise on market inefficiencies. They target companies with strong fundamentals trading at a discount, often due to short-term challenges or negative sentiment. Value funds aim for long-term growth as the market eventually recognises their worth.
Features of a Value Fund
- Focus on undervalued stocks: Invests in companies trading below their intrinsic value, aiming for long-term appreciation.
- Fundamental research: Relies on financial metrics and analysis to identify potential investment opportunities.
- Long-term investment horizon: Typically holds investments for several years to allow for market correction and value realisation.
- Diversification: Often includes a mix of sectors and industries, reducing overall portfolio risk.
- Potential for dividend income: Many value stocks pay high dividends, providing an additional income.
Benefits of investing in Value Mutual Funds
- Focus on undervalued stocks that can appreciate significantly over time.
- Fund managers conduct in-depth analyses to select the best-undervalued stocks.
- Investing in undervalued securities provides a margin of safety against potential losses.
- You benefit from the knowledge and experience of professional fund managers.
How should you invest in a Value Mutual Fund?
1. Set investment goals: Decide your financial objectives and the duration you want to invest.
2. Analyse funds: Conduct proper research on the funds based on their performance history, expense ratio, and fund management expertise.
3. Select investment method: For regular contributions, you may select either a lump sum investment or a systematic investment plan (SIP).
4. Complete the KYC process: Ensure you have essential Know Your Customer (KYC) documents for verification.
5. Invest: Select your chosen fund, specify the investment amount, and initiate the transaction through an AMC or an online platform.
Taxation rules of Value Mutual Funds
- Investment mandate: Value Mutual Funds are categorised as equity schemes because they invest at least 65% of their assets in equity stocks.
- Short-term capital gains (STCG): If units are redeemed within one year, STCG is taxed at 20% p.a. on the profits.
- Long-term capital gains (LTCG): Gains from units held for over one year are tax-exempt up to ₹1.25 lakh. Gains exceeding this limit are taxed at 12.5% p.a.
- Dividend taxation: Dividends received are taxed per the investor's income tax slab.
Also Read: Mutual funds vs Stocks
FAQs
What are Value Mutual Funds?
Value Mutual Funds are investment schemes that focus on stocks deemed undervalued by the market. These funds aim to capitalise on the potential for long-term growth as the market recognises these companies' true value.
What is the investment time horizon for a Value Mutual Fund?
The ideal investment time horizon for a Value Mutual Fund is typically 5 years or more. This allows sufficient time for the market to recognise and correct the undervaluation of selected stocks, enabling investors to achieve good returns.
Is SIP or lumpsum better for Value Fund investments?
Both SIP and lumpsum investments have advantages for Value Funds. SIPs allow for regular investments, reducing market timing risks, while lumpsum can yield higher returns if invested during favourable market conditions.
How much money do you need to start investing in Value Mutual Funds?
You can start investing in Value Mutual Funds with as little as ₹100 through a SIP. Lumpsum investments typically require a minimum of ₹1,000 to ₹5,000, depending on the fund's specific requirements.
Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.
Mutual Fund investments are subject to market risk, read all scheme related documents carefully. Axis Bank Ltd is acting as an AMFI registered MF Distributor (ARN code: ARN-0019). Purchase of Mutual Funds by Axis Bank’s customer is purely voluntary and not linked to availment of any other facility from the Bank. T&C apply.
