Understanding Mutual Funds: A Guide to Value Investing

When it comes to investing, mutual funds have become a popular choice for many individuals. These funds offer a diversified portfolio of stocks, bonds, and other securities, managed by professional fund managers. One type of mutual fund that has gained attention is the value fund, which follows a value investment strategy.

What is a Value Fund?

A value mutual fund is a type of investment scheme that focuses on investing in stocks that are currently undervalued but have the potential to perform well over time. These funds typically allocate at least 65 percent of their investments in stocks, with the aim of unlocking their value in the future.

Contrary to value funds, there are also contra funds available in the market. Contra funds are equity mutual funds that take a contrarian view on the market. However, as per the SEBI guidelines, a mutual fund house can offer either a contra fund or a value fund, but not both.

The Significance of Past Performance

Before investing in a mutual fund, it is common for investors to examine the past returns delivered by the scheme. While evaluating the performance of a stock can be based on the performance of one company, a mutual fund’s performance depends on multiple factors, including the performance of all the companies in which it has invested.

Therefore, the past performance of a mutual fund gains significant importance. When examining past returns, it is advisable to check the historical returns over a number of years and compare them holistically to gauge the potential returns one can earn in the future.

One value mutual fund that has consistently delivered healthy returns over different time periods is the Tata Equity P/E Fund. This fund has particularly performed well through systematic investment plans (SIP) investments over the past 19 years.

The Power of Systematic Investment Plans (SIP)

SIP is an investment strategy where an individual invests a fixed amount of money regularly at predetermined intervals, such as monthly or quarterly. This approach helps in averaging the purchase cost of units and reduces the impact of market volatility.

Let’s take a look at the returns of Tata Equity P/E Fund through SIP investments:

• Investing ₹4,000 every month through SIP for one year would have resulted in a growth of 49 percent. The total investment made would be ₹48,000, which would have grown to ₹59,000.
• Continuing the SIP for three years would have resulted in an investment of ₹1.44 lakh, which would have grown to ₹2.19 lakh.
• For a duration of five years, the investment would have grown to ₹4.68 lakh, with a total investment of ₹2.40 lakh.
• Over a span of 10 years, the investment of ₹4.8 lakh would have grown to ₹13.77 lakh.

Since the launch of the scheme, the Tata Equity P/E Fund has delivered an annualized return of 18.3 percent. This means that an investment of ₹9.52 lakh would have grown to ₹99.24 lakh, almost ₹1 crore.

It is important to note that historical returns do not guarantee a mutual fund’s future performance. Investors are advised to consider various factors such as the reputation of the fund house, the category of the scheme, macroeconomic factors, and the past performance of fund managers before making an investment decision.

Caution: Please remember that this information is for informational purposes only. It is always recommended to consult a SEBI-registered investment advisor before making any investment-related decisions.