Mutual Funds

Your Fund Portfolio

Parvatha Vardhini C | Updated on January 08, 2018

I am a regular investor in mutual funds over the last few years and have a mixed portfolio of large, multi, mid, small and micro-cap funds. I do not follow or understand the stock market and just go by advice or information available through various modes. Recently I met an adviser who cited the current market conditions and suggested I invest in value funds like Tata PE and Birla Pure Value Fund. How are these different from the regular growth funds? I am a long-term investor with risk taking appetite. Should I consider investing in these funds and if yes, which fund? Does this impact my returns over the long term?


Some thought has definitely gone into the advice given to you. Despite bouts of corrective phases, the market has moved up sharply since the bull run that began in September 2013.

Considering that the market is perched at a high now and earnings growth has not fully met expectations in quite a few pockets, the potential for upside in many stocks may be limited, given their already stiff valuations.

In this scenario, stocks that are trading at low valuations make for good bets. The low valuation may be because the stock/sector has been beaten down presently; but they may have the potential for good growth over the medium to long term.

Sometimes, a section of the market may trade at relatively lower valuations than others. For instance, while mid- and small-cap valuations are heated up currently, large-cap stocks offer value with comparatively lower valuations.

A smaller segment in a sector can also trade at a discount to the rest. Tyre stocks, for example, typically trade lower than many other auto component stocks.

Funds such as Tata Equity PE use such strategies when picking stocks.

This fund, for instance, has a mandate to invest at least 70 per cent of its portfolio in stocks whose valuations are lower than that of the Sensex. True to this mandate, the fund’s latest portfolio PE (trailing price to earnings ratio) stands at 21.1 times, at a discount to the Sensex trailing PE of 23.8 times.

Since value funds search for stocks across the spectrum of the market, they are predominantly multi-cap funds.

Coming to your query, since you already have investments in funds focused across different market-caps, a fund with a specific value strategy may be a good diversifier. But Tata Equity PE and Aditya Birla Sun Life Pure Value are not the only value funds around.

Other funds which follow value based investing include ICICI Pru Value Discovery (multi-cap), L&T Value (multi-cap) and Quantum Long-Term Equity (large-cap).

Since you have not mentioned the funds in your current portfolio, it is difficult to comment as to whether you can add one.

Due to the fact that they may invest in stocks that are beaten down or may be facing headwinds in the near to medium term, some of these funds may not beat their benchmarks or other diversified funds over short periods of one year or so.

ICICI Pru Value Discovery, for instance, shows returns of only about 9 per cent in the last one year, against its benchmark’s (BSE 500) 17 per cent. But this need not be the case with all value funds. L&T Value shows a 20.9 per cent return in the last one year. Over the longer term of five years, value funds compare well with other diversified funds following growth or blended strategies. Hence if you are a long-term investor and don’t have exposure to value funds yet, you can invest in them.

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Published on October 15, 2017

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