What are Value Funds?
Value funds follow value investment strategy during their stock selection. This strategy involves identifying stock pricing anomalies caused by temporary setbacks to the otherwise fundamentally strong companies. Sometimes the prices of these stocks are down simply because these stocks or the sectors they belong to are currently out of favor. These funds have to invest at least 65% of their total assets in equity and equity linked instruments.
Why Invest in Value Funds?
Broader market often takes some time to recognize the long-term growth potential of some fundamentally sound companies. Stocks of such companies may trade at prices well below their intrinsic value, i.e. their actual worth, and underperform the broader market as well.
Value funds aim to exploit such market inefficiencies by buying those stocks before the rest of the market does, at a much lower cost. As these funds usually prefer undervalued companies with good track records and excellent management, the probability of these companies being recognised by the broader markets remains high.
Once the broader market identifies the undervalued stocks, the investors of value funds will benefit from steeper price rises. Investing in these funds comes with lower risk as their portfolio constituents have higher margin of safety. These undervalued stocks have lower downside risk as they are already trading at a substantial discount to their intrinsic value as well as of the broader market.
Table of 10 Best Value Funds
| Fund Name | Returns (%) | |||
| 1 year | 3 year | 5 year | 10 year | |
| HSBC Value Fund | 4.44 | 24.88 | 27.26 | 16.49 |
| Quant Value Fund | -7.66 | 24.73 | – | – |
| JM Value Fund | -8.74 | 24.40 | 26.76 | 16.55 |
| Axis Value Fund | 2.84 | 23.02 | – | – |
| Nippon India Value Fund | 0.81 | 21.97 | 26.18 | 15.26 |
| ICICI Prudential Value Fund | 4.67 | 21.70 | 26.68 | 15.45 |
| ITI Value Fund | -5.17 | 20.18 | – | – |
| Aditya Birla Sun Life Value Fund | -4.36 | 20.11 | 23.96 | 12.61 |
| HDFC Value Fund | 3.75 | 20.04 | 23.76 | 14.55 |
| Tata Value Fund | -3.38 | 20.03 | 22.36 | 15.55 |
Data as on August 14, 2025
Risks of Investing in Value Funds
While value funds have lower downside due to their investment in undervalued stocks, they can still be susceptible to value trap. The anticipated turnaround may never come forcing the fund to sell off the investment at lower or sub-optimal prices. These funds also carry the risk of remaining consistent under-performers during an extended bull market.
Who Should Invest in Value Funds?
- Investors wishing to exploit the price discovery process of undervalued companies with strong fundamentals and growth potentials
- Those seeking to reduce their downside risk in over-valued market conditions
As the process of price discovery can take long term, investors should stay invested for at least 5 years and preferably 7 years to derive the maximum benefit from the entire investment cycle
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