Unveiling the Value in Value Investing: A Guide for Mutual Fund Investors

Brokerage Free Team • April 16, 2024 | 3 min read • 1556 views

Investing wisely is more than just a financial strategy; it's an art form that requires insight, analysis, and patience. Value investing, in particular, has garnered significant attention for its ability to unearth hidden gems in the stock market. This approach revolves around identifying stocks that are undervalued relative to their true worth, offering the potential for substantial returns over time. For mutual fund investors looking to embrace this method, there are two primary avenues: active funds and index funds.

Exploring Active Funds: The Quest for Contrarian Value

Active value funds, also known as contra funds, represent a proactive approach to value investing within the mutual fund landscape. Contrarian by nature, these funds seek opportunities that defy conventional market trends, often targeting companies with untapped potential. While their strategies vary widely, encompassing factors like historical performance, earnings, book value, cash flow, and dividend yield, their overarching goal remains consistent: to unearth value where others may overlook it.

A comparative analysis of 3-year rolling returns reveals the performance dynamics of value/contra funds against flexi-cap funds and the Nifty 500 index. While these funds have outperformed the Nifty 500, they have trailed behind flexi-cap counterparts, showcasing an average return of 13.87% versus 15.14% for flexi-cap funds and 12.43% for the Nifty 500.

However, the diversified nature of active value funds introduces a degree of variability in their investing styles. This variability stems from the metrics used to evaluate value, ranging from traditional parameters like P/E and P/B ratios to forward-looking indicators of business performance. Consequently, investors may encounter discrepancies in stock selections across different funds, influencing their satisfaction with fund managers' decisions.

Decoding Investment Strategies: Insights into Prominent Value & Contra Funds

An in-depth look at leading value and contra funds unveils their unique investment philosophies:


While these active funds offer diverse strategies, their interpretive freedom regarding value can lead to overlaps with non-value-focused funds, potentially affecting investors' expectations.

Embracing Index Funds: The Stability of Value-Based Indices

For investors seeking a more standardized approach to value investing, index funds offer a compelling alternative. The Nifty 50 Value 20 Index, comprising 20 value stocks selected based on financial metrics like ROCE, P/E, P/B, and dividend yield, stands as a prominent example. Unlike active funds, the methodology of index funds remains consistent, ensuring consistent exposure to value stocks.

Performance comparisons between the Nifty 50 Value 20 Index and the Nifty 50 showcase the former's resilience, outperforming across various rolling periods and calendar years. Despite increased volatility, the index has consistently delivered superior returns, making it an attractive choice for long-term investors aligned with the value investing ethos.

Navigating the Landscape: Considerations and Conclusions

In conclusion, value investing presents compelling opportunities for mutual fund investors, with options spanning active value/contra funds and value-based index funds like the Nifty 50 Value 20 Index and Nifty 500 Value 50 Index. Each avenue offers distinct advantages and considerations, catering to investors' preferences for active management or passive stability.

As the investment landscape evolves, staying informed and adaptable remains paramount. Whether embracing the dynamism of active funds or the stability of index funds, aligning investment choices with personal goals and risk tolerance is key to a successful value investing journey.

We trust this article has provided valuable insights into integrating value investing into mutual fund portfolios, empowering investors to make informed decisions and unlock the potential of value-based opportunities.