Want to invest in value-oriented equity mutual funds? Here are the best ones of 2018
Everybody is talking about value investing these days. Even as the stock market stumbles along nervously, many investors are looking for tools to navigate the volatile times in the market. And suddenly everybody is thinking about the safety of value investing.
For latecomers, value investing is an investment strategy that looks to buy stocks that are trading below their intrinsic value. In other words, value investors are always trying to buy stocks that they believe are undervalued in the market. These investors hope that the market may realise the true value of these stocks one days, and they will make money by holding the stocks until that time.
So, how do mutual fund investors play the value game? Simple: pick up equity mutual fund schemes that follow the value investing strategy. There are around 16 value-oriented schemes currently available in the market. ICICI Prudential Value Discovery Fund is the largest value scheme with an asset under management of over Rs 17,300 crore. The other prominent value schemes are: L&T India Value Fund, Tata Equity P/E Fund, UTI Value Opportunities Fund, and Aditya Birla Sun Life Pure Value Fund.
To make life easier for you, ET.com Mutual Funds have put together a list of recommended value-oriented equity mutual fund schemes. We have chosen three value-oriented schemes for you, and they are: Invesco India Contra Fund, TATA Equity PE Fund, and IDFC Sterling Value Fund.
If you are looking for schemes that would follow a value investing strategy, you can consider investing in these schemes with a long investment horizon. Here are our recommended schemes:
Best value funds to invest in 2018
Methodology
ET.com Mutual Funds has employed the following parameters for shortlisting the mutual fund schemes.
1. Mean rolling returns: rolled daily for the last three years.
2. Consistency in the last three years: The three-year period is divided into smaller time periods each with a progressing weighting.
3. Downside risk: We have considered only the negative returns given by the mutual fund scheme for this. X =Returns below zero Y = Sum of all squares of X Z = Y/number of days taken for computing the ratio Downside risk = Square root of Z
4. Outperformance: It is measured by Jensen's Alpha for the last three years. Jensen's Alpha shows the risk-adjusted return generated by a mutual fund scheme relative to the expected market return predicted by the Capital Asset Pricing Model (CAPM). Higher Alpha indicates that the portfolio performance has outstripped the returns predicted by the market.
Average returns generated by the MF Scheme - [Risk Free Rate + Beta of the MF Scheme * {(Average return of the index - Risk Free Rate}
5. Asset size: For equity diversified funds, the threshold asset size is Rs 100 crore, and Rs 50 crore for balanced funds.
We have also conducted a back testing of our model portfolios. These returns are forward returns from the base date.
(Disclaimer: past performance is no guarantee for future performance.)
For latecomers, value investing is an investment strategy that looks to buy stocks that are trading below their intrinsic value. In other words, value investors are always trying to buy stocks that they believe are undervalued in the market. These investors hope that the market may realise the true value of these stocks one days, and they will make money by holding the stocks until that time.
So, how do mutual fund investors play the value game? Simple: pick up equity mutual fund schemes that follow the value investing strategy. There are around 16 value-oriented schemes currently available in the market. ICICI Prudential Value Discovery Fund is the largest value scheme with an asset under management of over Rs 17,300 crore. The other prominent value schemes are: L&T India Value Fund, Tata Equity P/E Fund, UTI Value Opportunities Fund, and Aditya Birla Sun Life Pure Value Fund.
To make life easier for you, ET.com Mutual Funds have put together a list of recommended value-oriented equity mutual fund schemes. We have chosen three value-oriented schemes for you, and they are: Invesco India Contra Fund, TATA Equity PE Fund, and IDFC Sterling Value Fund.
If you are looking for schemes that would follow a value investing strategy, you can consider investing in these schemes with a long investment horizon. Here are our recommended schemes:
Best value funds to invest in 2018
| Scheme name | 1-year returns (%) | 3-year returns (%) | 5-year returns (%) |
| Invesco India Contra Fund | 10.64 | 15.84 | 25.72 |
| Tata Equity PE Fund | -0.71 | 16.86 | 24.43 |
| IDFC Sterling Value Fund | -2.82 | 14.53 | 21.99 |
Methodology
ET.com Mutual Funds has employed the following parameters for shortlisting the mutual fund schemes.
1. Mean rolling returns: rolled daily for the last three years.
2. Consistency in the last three years: The three-year period is divided into smaller time periods each with a progressing weighting.
3. Downside risk: We have considered only the negative returns given by the mutual fund scheme for this. X =Returns below zero Y = Sum of all squares of X Z = Y/number of days taken for computing the ratio Downside risk = Square root of Z
4. Outperformance: It is measured by Jensen's Alpha for the last three years. Jensen's Alpha shows the risk-adjusted return generated by a mutual fund scheme relative to the expected market return predicted by the Capital Asset Pricing Model (CAPM). Higher Alpha indicates that the portfolio performance has outstripped the returns predicted by the market.
Average returns generated by the MF Scheme - [Risk Free Rate + Beta of the MF Scheme * {(Average return of the index - Risk Free Rate}
5. Asset size: For equity diversified funds, the threshold asset size is Rs 100 crore, and Rs 50 crore for balanced funds.
We have also conducted a back testing of our model portfolios. These returns are forward returns from the base date.
(Disclaimer: past performance is no guarantee for future performance.)