Investors are warming up to the idea of investing in value funds and focused funds, which have witnessed a significant spike in recent times. These are two popular categories of mutual funds that have their own unique features, risks, and returns associated with them.
A value fund is an open-ended equity mutual fund scheme that adopts a value investing strategy. Generally, such types of equity funds invest in low-value stocks.
Investors (or fund managers) of such funds invest in discounted or undervalued stocks that tend to trade below their respective intrinsic value, which represents the actual value of stocks in the market, and holding them for a long term.
The core idea to select such stocks is that they may be undervalued at the moment for temporary factors, however, these stocks offer higher returns on a long-term basis. Such funds tend to have a high dividend yield.
This category of mutual fund offered a high average return of 29.91% in a year up to July 6, 2023. Of the 17 value funds listed on the website of the Association of Mutual Funds of India (AMFI), the performance of at least 10 value funds was over the average return of 29.91% in 2022.
On the other hand, focused funds are a type of equity mutual fund that invests in a limited number of stocks. As per the markets regulator the Securities and Exchange Board of India (SEBI), focused funds are mandated to invest in a maximum of 30 shares.
While focusing on a few sectors, such funds may include large-, mid-, and small-cap funds. The core idea of a focused fund is to invest in high-performing assets to ensure maximum returns.
Of the total 25 focused funds listed on the official website of AMFI, the performance of about 12 funds has been more than the category average return of 23.7% in 2022.
Investors with an investment horizon of five years or more can consider investing in value funds, while seasoned investors who have the risk appetite of investing in select stocks can opt for focused funds.
Rajiv is an independent editorial consultant for the last decade. Prior to this, he worked as a full-time journalist associated with various prominent print media houses. In his spare time, he loves to paint on canvas.
