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.
Watch this video to know how you can invest in US stocks from India
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
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.
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.
Shriram is a Consultant at CubeWealth. He has developed cutting edge IT products for over 2 years before turning to his passion for the written word. His love for philosophy, developing products, and empowering people through quality content is what got him to CubeWealth.
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