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Introduction to Value Fund
Value investing was coined by Benjamin Graham who is to date one of the most successful investors in the world. Value investing refers to investing in such stocks whose market prices are lower than their fair value. However, for retail investors, it is very difficult to do in-depth research of individual stocks and find the ones which are undervalued, isn’t it? However, with a Value Fund, you can adopt the value investing approach without much hassle.
In this write-up, you will read about what a Value Fund is and about its features, benefits, investment tenure, tax implications, and other factors to consider before investing in Value Funds.
What is a Value Fund
Value Fund refers to those Mutual Funds which invest in undervalued stocks and wait for them to reach their fair price. This is a long-term investment approach, you cannot expect the price to be equal to the fair price of the stock in a day.
The fair price of a stock is called intrinsic value. This is a value that can be derived by doing a fundamental analysis of the company. Now, due to different market inefficiencies, the market price of a stock doesn’t match the intrinsic value. However, once these inefficiencies are sorted by the market itself, then the market price and intrinsic value get equal.
So, the fund managers find out these inefficiencies and also invest in those stocks which are undervalued. Hence, when the inefficiencies get corrected, the price of the fund will increase as the stock prices will increase.
Benefits of Value Fund
The benefits of investing in Value Fund include:
- The primary advantage of investing in Value Funds is that you stand a chance of having an exponential return.
- These funds are less vulnerable as the stocks in which they invest are undervalued.
- With a Value Fund, portfolio diversification can be done well. As the stocks in these funds spread across sectors, your portfolio can get a good risk and return balance.
- When you are adopting the value investing approach by using a Value Fund, you do not need to pick the stocks for your portfolio, that is the work of the fund manager. The most important aspect of Value investing is picking the right stocks at the right time.
Who can Invest in a Value Fund
The investors who are looking for:
- Higher returns: Value Funds are better investment options for those investors who are looking for higher and aggressive returns. Those who can take a high risk earn higher returns.
- Investors who have a long-term horizon: Patience is the key when you are going for Value Funds. The value of the underlying stocks takes time to reach the fair value, so it’s a long-term affair.
Taxation of Value Funds
As Value Funds invest at least 65% of the asset in equity and equity-related instruments of undervalued companies, they are categorized as equity-oriented funds. So, the tax that Value Fund holders need to pay on the profits from the fund are as follows:
- Short-term capital gain tax @15% (as per current slab) on any profit if the investor remains invested only for a period less than equal to 12 months.
- Long-term capital gain tax @10% (as per current slab) on profits above Rs. 1 Lakh if he or she stays invested for more than 12 months.
Factors to Consider Before Investing in Value Mutual Funds
The factors you need to keep in mind include:
- Value Funds are for long-term investment. If you are looking for short-term investment options, then these funds are not suitable options.
- The expense ratio must be considered at the time of investment.
- The minimum amount that you can invest depends on the scheme you are investing in. However, in general, the minimum amount is Rs. 500 for SIP investment and Rs. 5,000 for lump sum investment.
How can you Invest in Value Funds Through Nivesh
Any investor can enjoy the benefits of investing through Nivesh in the following easy steps:
- Create an account in Nivesh by providing your basic KYC details. (If you already have an account then just login into your account)
- On your portfolio page click on the Buy New tab at the right top corner of the screen.
- Select the category and choose the funds you want to purchase.
- If you already know the name of the fund to buy, then you can search the particular fund through Quick Order.
- Fill the transaction details and confirm. You can place up to 5 orders in one go.
- You can make payment through your registered account through UPI, Direct Pay, or NEFT/ RTGS , Bank Mandate or Cheque. For same-day NAV, select UPI, Direct Pay or NEFT / RTGS as other payment options may take a few days to clear, Nodal account takes about 1-2 days to clear payment from the approved mandate and cheque takes about 2-5 days in clearing due to which you will not get the same-day NAV.
Frequently Asked Questions (FAQs)
1. Is Value Fund Risk-Free?
No, there is a certain amount of risk involved in all types of investments, so in Value Funds. However, the volatility is less compared to others and thus the risk is lesser as well.
2. What is the Minimum Amount to Invest in a Value Fund?
You can start investing within just Rs. 500 via SIP investment options. However, the minimum amount varies from one fund to another.
3. How Long Should you Invest in a Value Fund?
Value Fund is for long-term investment purposes. Generally, investors invest in these funds for at least 5 years tenure.
4. Can we Redeem a Value Fund Anytime?
Yes, you can redeem any amount from the Value Fund anytime post accounting for exit load if applicable. There is no maturity or lock-in period as such.
5. Is There any Tax on Value Funds?
Yes, the profits from Value Fund are taxable. The tenure for which you stay invested decides the rate of taxation as per Short-term or Long-term capital gain taxes.
