10 Best Value Funds to Invest

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What are Value Funds?

Value funds follow value investment strategy during their stock selection. This strategy involves identifying stock pricing anomalies caused by temporary setbacks to the otherwise fundamentally strong companies. Sometimes the prices of these stocks are down simply because these stocks or the sectors they belong to are currently out of favor. These funds have to invest at least 65% of their total assets in equity and equity linked instruments.

Why invest in Value Funds?

Broader market often takes some time to recognize the long-term growth potential of some fundamentally sound companies. Stocks of such companies may trade at prices well below their intrinsic value, i.e. their actual worth, and underperform the broader market as well.

Value funds aim to exploit such market inefficiencies by buying those stocks before the rest of the market does, at a much lower cost. As these funds usually prefer undervalued companies with good track records and excellent management, the probability of these companies being recognised by the broader markets remains high.

Once the broader market identifies the undervalued stocks, the investors of value funds will benefit from steeper price rises. Investing in these funds comes with lower risk as their portfolio constituents have higher margin of safety. These undervalued stocks have lower downside risk as they are already trading at a substantial discount to their intrinsic value as well as of the broader market.

Table of 10 Best Value Funds

Fund Name	Return (%)
	1 year	3 year	5 year	7 year	10 year
UTI Value Opportunities Fund	62.01	11.16	12.98	12.47	11.48
ICICI Prudential Value Discovery Fund	67.10	10.44	11.49	15.38	14.50
Nippon India Value Fund	68.13	9.06	13.81	15.39	11.88
Tata Equity P/E Fund	51.07	4.61	13.47	15.93	12.68
HDFC Capital Builder Value Fund	61.71	5.15	11.56	13.26	11.73
L&T India Value Fund	67.86	6.50	13.30	18.04	14.92
Quantum Long term Equity Value Fund	67.32	7.63	10.44	11.71	10.99
Templeton India Value Fund	79.11	4.69	11.10	12.74	9.49
Indiabulls Value Fund	51.58	1.75	7.90	—	—
Aditya Birla Sun Life Pure Value Fund	68.96	-1.38	9.00	14.14	13.40
Benchmark	59.68	11.59	14.35	13.27	11.24
(S&P BSE 100 TRI)
Value/Contra Fund category average	66.34	6.74	12.35	14.65	12.45

(Data as on 27^th April 2021, Source: Value Research)

Investment strategies for Best Value Funds 

1. UTI Value Opportunities Fund

• Looks at taking aggressive sector positions on the basis of medium term growth prospects and valuation considerations
• Emphasises on fundamental characteristics like healthy cash flows and return ratios to identify companies within the selected sector
• Looks for opportunities where return ratios or cash flows are likely to improve
• Has the flexibility to take active position across the market capitalization spectrum
• Despite the large cap bias, exposure to midcap companies can vary widely on the basis of valuation differentials

2. ICICI Prudential Value Discovery Fund

• Invests in companies having high growth potential trading but at discount to their intrinsic/fair value
• Follows a bottom-up sector agnostic approach of investing
• Identifies stocks with low market prices low relative to their historic performance, book value, cash flow potential, earnings and dividend yield

3. Nippon India Value  Fund

• Follows value investment strategy to exploit investment opportunities across all the sectors and market capitalization
• Intends to invest in undervalued stocks with the potential to generate better risk adjusted returns over the long term
• Identifies undervalued stocks on the basis of numerous factors including but not limited to the companies’

–   stock valuation

–   cash flows

–   financial strength

–   business prospects & earning potential

–   competitive advantage

4. Tata Equity P/E Fund 

• Invests at least 70% of its assets in companies with lower rolling 12 month P/E ratios than that of the S&P BSE Sensex
• Uses other quantitative and qualitative screens as well before investing in companies such as:

–   low profit to book value

–   high dividend yields

–   management competitiveness

–   growth prospects

–   business competitiveness, etc

• Offers two dividend options — Dividend Trigger A and Dividend Trigger B

–   Dividend Trigger A: Initiates dividend declaration on 5% appreciation of NAV from the last ex- dividend NAV during the immediate preceding calendar quarter

–   Dividend Trigger B: Initiates dividend declaration on 10% appreciation of NAV from the last ex-dividend NAV during the immediate preceding calendar quarter

• May also invest in companies poised for a sharp turnaround or a substantial improvement in their profitability 

5. HDFC Capital Builder Value Fund

• Invests in undervalued stocks trading below their intrinsic value
• Measures intrinsic value of companies through their potential earnings and/or growth in future cash flows
• Usually maintains at least 50% of its equity portfolio in stocks having lower trailing Price/Earnings (P/E) and/or Price/Book ratios than those of the corresponding median of the stocks included in its benchmark index i.e. NSE 500
• Does not have sector or market cap bias

6. L&T India Value Fund

• Invests predominantly in undervalued stocks focussing on fundamentals
• Invests with a margin of safety
• Uses a proprietary investment process and in-depth research including scrutiny of balance sheets, receivables, cash flows, risks, tangible and intangible assets, etc
• Uses following indicators to spot value-based opportunities

–   higher dividend yield

–   earning revival due to improving macro-environment

–   potential re-rating due to higher growth

–   industry leader or rapidly gaining market share

–   embedded value in the form of EV/Tonne, EV/EBITDA and cash flow/yield ratios

7. Quantum Long term Equity Value Fund

• Seeks to invest primarily in stocks included in the S&P BSE 200 index
• Uses a bottom-up stock selection process
• Has a low portfolio turnover ratio
• Holds cash during overvalued market conditions
• Does not indulge in derivatives and hedging
• Uses intensive fundamental analysis, both qualitative and quantitative for stock selection

8. Templeton India Value Fund

• Follows a long-term bottom-up investing approach
• Large capitalised and/or liquid stocks are preferred
• Has a low portfolio turnover ratio
• Uses rigorous proprietary screens, fundamental analysis and a global network of experienced research resources for stock selection
• Follows a company-by-company basis for research to determine the economic worth of companies based on their projected future earnings, asset value potential, cash flows and material environmental, social and governance (ESG) factors

9. Indiabulls Value Fund

• Invests in companies meeting the relative value criteria and included in top 500 by market capitalization
• Considers companies with relative value as those having a combination of Return on Capital Employed (RoCE) and higher earnings yield
• Uses ‘Piotroski score’ to identify valuation-based opportunities
• Maximum number of stocks in the portfolio will not exceed 40

10. Aditya Birla Sun Life Pure Value Fund

• Uses fundamental analysis to assess the businesses of the companies vis a vis their intrinsic value. Factors assessed include:

–   financial statements

–   position in the earnings cycle

–   management quality

–   competitive position in their industries

• Focuses on long-term and cyclical trends of the businesses before investing in them
• After identification as relatively undervalued, additional fundamental analysis is performed on the selected stocks to determine whether there are sufficient catalysts to unlock hidden value within a reasonable time
• Sells stocks that reaches target price without any commensurate increase in their intrinsic values

Risks of investing in Value Funds 

While value funds have lower downside due to their investment in undervalued stocks, they can still be susceptible to value trap. The anticipated turnaround may never come forcing the fund to sell off the investment at lower or sub-optimal prices. These funds also carry the risk of remaining consistent under-performers during an extended bull market.

Who should invest in Value Funds?

• Investors wishing to exploit the price discovery process of undervalued companies with strong fundamentals and growth potentials
• Those seeking to reduce their downside risk in over-valued market conditions

As the process of price discovery can take long term, investors should stay invested for at least 5 years and preferably 7 years to derive the maximum benefit from the entire investment cycle

You may be Interested In:

Best Contra Funds
Best Multi-Cap Funds
Best Large and Mid Cap Funds
Best ELSS (Tax Saver) Funds