What Is A Value Fund & Who Should Invest?

Mutual funds use various strategies to grow wealth. Some funds choose to invest in tried and tested large-cap stocks while others choose to invest in high-quality debt and fixed income securities.

But certain mutual funds stand out for their unique investment approach and unorthodox strategies. These include the likes of value funds, contra funds, and more.  

Believe it or not, this phrase, “If you can’t handle me at my worst, you don’t deserve me at my best”, applies to a value fund. In this story, we’ll help you understand the underlying principles of a value fund.

Important: This blog is meant to educate readers and the information furnished here is not to be construed as investment advice from Cube Wealth. 

What is A Value Fund?

A value fund invests in undervalued stocks with the potential to deliver long term profits. The assumption is that these stocks are undervalued due to deficiencies in the market or investor ideology.

Assuming the market realises the potential of these stocks, the price will go up and the value fund, as a result of investing in these stocks before the purple patch, will generate lucrative returns.

The TSLA stock is one of the more popular examples of the value growth story. It traded for $4.56 on 13th January 2012. As of 08th January 2021, TSLA is valued at $816.04 (Source: Google). 

Tesla wasn’t an overnight success by any means. It took a firm belief in an innovative and potentially unachievable concept to get the brand to where it is today. 

Investors who recognized this early are reaping the rewards now. A value fund tries to do exactly this. It invests in multiple companies that have long term potential but are currently flying under the radar. 

Read our story on the TSLA stock. Hint: it also tells you how to invest in TSLA for as little as $1.   

Features Of A Value Fund

1. Equity funds that invest across market caps 

2. Invests in undervalued stocks with future potential

3. Long term investment option that carries a high risk

4. Heavily relies on the judgment of the fund manager

5. Historical 5-year returns between 9-14% (Source: Google)

Did you know that a fund house can either offer a value fund or a contra fund? Read this blog to know more about contra funds.

Who Should Invest In Value Mutual Funds?

A value fund relies on the future potential of undervalued stocks. This automatically means that a value fund should be considered as a long term investment. 

Given the high risks associated with banking on multiple stocks to deliver 5x, 10x, or 20x growth, it is advisable to consult a Cube Wealth Coach or Download the Cube Wealth App before investing in any value fund even if you are a seasoned investor. 

If you’re looking for stocks for long term growth but with lesser unknowns and better advisory, you can choose to invest in US stocks and ETFs for as little as $1 using the Cube Wealth app. 

Watch this video to know how you can invest in US stocks from India

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Consider These Factors Before Investing In Value Mutual Funds

1. Your risk profile

2. Long term investment goals

3. Patience and tolerance 

4. Existing portfolio allocation

5. Quality of advice

Conclusion

Value funds invest in undervalued stocks that are overlooked due to market deficiencies, investor ideology, or other factors, even though the stocks have the potential to deliver profits in the future.

Historical data suggests that value funds can generate 9-14% over 5+ years. However, there are other mutual funds like international funds and global funds that can deliver better returns with lesser unknowns. 

Read our blog on international and global mutual funds. 

Remember to consult a wealth coach before investing in any asset. A wealth coach can tell you which options to invest in based on your investment goals and risk profile. 

Read our resources on DIY investing in India to know how you can use an investment platform like Cube Wealth to your advantage:

1. All About DIY Investing In India

2. How To Invest In Mutual Funds In India?

3. How to Buy Apple, Amazon, Google Stock from India?

4. Why Investing Using Cube Wealth Is The Smart Choice

5. Investment Options Better Than Fixed Deposits: Alternatives to FD

Note: All facts, figures & data mentioned here are from publicly available sources. It is strongly recommended that you consult a Cube Wealth Coach prior to making any investment decisions.