When investing in value funds

K. ARAVIND

The classification of mutual funds has been changed as per the guidelines of SEBI (Securities and Exchange Board of India). According to this classification, the names of many funds have changed. For example, some funds, formerly known as multi-cap funds, have added value to their names and are now called value funds.

For example, HDFC Capital Builder Value Fund’s portfolio has 60 per cent large cap shares and 40 per cent mid- and small cap funds. Similarly, the portfolio of Aditya Birla Sun Life Pure Value Fund includes 60 per cent large cap and 40 per cent mid- and small cap shares.

Naturally, investors may wonder what the difference is between multi-cap funds and such funds. Value funds make choices beyond market-based classification. It is a coincidence that in such a selection, stocks of different tiers are represented on the basis of market value.

It is generally said that there are two types of investment methods — value investing and growth investing. Value investing is a method of selecting and investing in stocks that are available at a price lower than the base value. Value investing follows the investment principle of buying stocks that fall below the baseline value due to the unrecognised strength of a company’s business and holding them until the work realises their value.

At the same time, in the case of growth investing, the shares of the fastest growing companies are bought at market-specified premiums. If value stocks are low cost, growth stocks are high cost ones.

Value stocks can be found in largecap stocks, midcap stocks and smallcap stocks. Therefore, stocks in all these three categories are found in value funds. But that does not mean they are multi-cap funds. Typical multi-cap funds include Growth Stocks and Value Stocks.

Value investing is a process that requires a long wait to see results. Once an investor realises the value of a stock and invests in it, it is probably too late when the market realises it and the stock price will rise. The investor must have the patience to wait until then and maintain unwavering faith in the investment he has made. Reaping the benefits of investment in the short term is not possible in value investing.
The same is true of value funds. Investors must be prepared to wait a long time to get the best out of them. It is also necessary to invest in multi-cap funds for diversification.