What are Value Funds?
- 16th September 2025
- 10:00:00 AM
- 6 min read
Value funds are a common type of mutual fund that focuses on undervalued company stocks. There are various types of mutual funds available in the Indian securities market, each with its unique features. It can be beneficial for investors who follow the value investing approach.
Let us explore what are value funds in more detail and understand how they work, their advantages, and who can invest in them.
What are Value Funds in a Mutual Fund?
Some investors purchase undervalued stocks and sell them when their intrinsic value rises. Value funds come with the same investment strategy. They pool money from investors and invest in company stocks whose market price is lower than their intrinsic value.
This approach is useful for long-term investment goals since value investing focuses on capitalising on market inefficiencies and generating higher returns over the long run.
The underlying belief is that such undervalued stocks, affected by temporary market factors, hold strong growth potential and can deliver significant returns in the long run.
Key Features of a Value Mutual Fund
After knowing the value mutual funds meaning, let us evaluate the key features of value mutual funds:
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Portfolio Diversification
Value funds typically invest in a diverse range of company stocks that are currently lower-priced but have the potential to grow in the future. As a result, value funds offer a diversified portfolio to the investors.
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Contribution to the Economic Welfare
Another essential feature of value funds is that they support the economic recovery of companies that are in slow-demand phases. This is how these funds help both the companies and investors.
How Does Value Funds Function?
Following the value investing principle, value funds buy stocks at low prices and sell them at a higher price. Fund managers of this category of funds evaluate the financial statements, company models, and growth prospects of different companies, and invest in some of them which are trading below their intrinsic value.
Value funds also look for catalysts that can lead to a positive change in these companies’ market perception. These can be changes in management, performance turnaround, or a new product launch. Fund managers capitalise on these positive changes, which help them to generate higher returns.
Who Can Be Beneficial for Investing in Value Funds?
Since value funds focus on a specific investment approach, not everyone can benefit from these. Below are the categories of investors who should invest in value funds:
- Investors who understand macroeconomic trends and their positive impact on investments
- Who can take calculated risks for higher returns
- Investors who can tolerate short-term market fluctuations
- Investors prefer consistent growth over short-term profit
Advantages of Investing in Value Funds
Investing in value funds allows you to invest in company stocks that can grow over time. Here are some other benefits of investing in value funds:
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Higher Returns
Value funds invest in stocks below their intrinsic values. Investors investing in these funds can benefit from the growth of these stocks in the long run.
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Low Volatility
Value funds are less vulnerable to market volatility since they focus on undervalued stocks.
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Lower Downside Risks
Unlike growth funds, value funds have lower downside risks since they invest in stocks with a margin of safety. This means that these stocks have a lower probability of falling below the buying prices.
If you want to avail all of these benefits, you can download the PL Capital Group – Prabhudas Lilladher application and use its mutual funds platform. PL allows you to invest in mutual funds offered by more than 45 fund houses.
Things to Consider While Investing in Value Mutual Funds
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Investment Horizon
To achieve good returns from value funds, you must stay invested in these funds for more than 7 years. A long investment horizon is crucial for value stocks to understand their potential to grow, as managers choose undervalued stocks.
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Past Performance
While investing in value funds, always analyse their past performance over the last 5 years. This helps to determine whether the fund manager has achieved the objective of the fund through various market cycles. This helps you to analyse whether the value fund is a good choice for you or not.
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Diversification
Always look for funds that invest in companies with different market capitalisations. This allows you to minimise the risk exposure and improve your portfolio performance.
Taxation in Value Funds
Value funds invest a minimum of 65% of their assets in equity and equity-based instruments. Hence, they are taxed as equity funds. Below are the tax implications of value funds:
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Short-Term Capital Gains (STCG)
If you sell your value fund units within one year of purchase, the gains will be taxed as short-term capital gains at 20%.
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Long-Term Capital Gains (LTCG)
If you sell your value fund units after one year of purchasing them, all of your gains are taxed as long-term capital gains at 12.5%. However, there is an exemption of INR 1.25 lakh per financial year for LTCG from equity funds. This means that you have to pay taxes if you gain more than INR 1.25 lakh, and the gains below INR 1.25 lakh are tax-free.
Final Thought
Understanding what are value funds helps you know how to make profits by investing for the long-term and know their benefits. They offer higher returns, minimise downside risks, and are less prone to market volatility. Before investing in these funds, you must consider crucial factors like the past performance and your investment horizon.
Open a Demat account for free with PL to invest in value funds. With PL, you can enjoy the benefits of investing in value funds through both SIPs and lump sum investments.
Frequently Asked Questions
1. How can I choose the best value fund?
To choose the best value fund, you must conduct proper market research and analyse your investment goals and risk tolerance.
2. What is the investment horizon for value funds?
An ideal investment horizon for value funds is more than 7 years.
3. Are value funds beneficial for long-term investment?
Yes, value funds are suitable for long-term investment horizons. They need time to realise the growth potential of undervalued stocks, which may not be suitable for short-term investment goals.
4. What is the difference between value funds and growth funds?
Value funds seek undervalued stocks that have higher growth potential. Conversely, growth funds focus on stocks with higher growth potential, irrespective of their current market valuation.
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Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.
