Getting your basics right on Value Investing

As players in the dynamic landscape of equity markets, investors have multiple options to diversify their portfolios and leverage small, medium, and large-cap mutual funds.  On further delving, the investors can also opt for Growth, Value, or Blend Funds.  Growth funds are traded on stocks that show consistent growth as the name suggests, where Value funds are based on stocks that are traded at lower prices but with strong intrinsic potential.  On the other hand, blend stocks are a mix of both growth and value funds. The pandemic has accelerated interest in Value funds as investors are expanding their portfolios and seeking diverse strategies to manage and grow their wealth.

Value funds are investments that require time and patience by the investor and the wait can run into several years before the returns materialise.  These funds on close scrutiny can turn out to be a gold mine for investors.  These stocks are generally traded at a discounted value that is much below their true worth.  Investors in for the long haul should consider this investment option for a sustained run in the market.

These funds are like sown seeds that take time to mature before they start showing any visible returns.  Investors need to deploy patience in order to reap the benefits of investing in value funds.  Markets with their self-correcting mechanism ensure that the prices of such value stock soar and inefficiencies are weeded out over a period of time.

Studying and analysing the market is the first step for any fund manager or keen investor.  Tracking such stocks during the bear and bull runs is crucial to better understand their performance. An assessment of the risk-reward ratio will help plan better and understand their latent potential.  These are generally stocks that have a low price to earnings or low price to book value, but they carry a higher dividend yield and are under-owned.

As the disclaimers always state all market investments are and shall always be subject to risk, these funds aren’t risk-averse either. The risk appetite of investors is put to test once they invest in this mode of equity.  These funds act like a cushion during market disruptions but may behave erratically during the bull run.

Investors should track the efficiency of the fund house or manager in identifying such stocks and their methodology in handling risks.  The ability, skill, and experience of the fund manager or fund house are aspects that should not be neglected.   Additionally, the portfolio should be adequately diversified across multiple sectors to curtail the risks of losses and maximise gains.

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