The best value funds to invest in July 2024

The value theme has been dominating the Indian stock market for about a year now. The mutual funds that follow the value investing strategy have given handsome returns in the last one year. However, mutual funds that followed the growth strategy have suffered losses. If you swear by the principles of value investing, you can invest in value funds to meet your long-term needs. If you are new to value investing, you should learn about this type of investment and its pros and cons. A value investor tries to select stocks that are available at cheaper valuations. These investors use various metrics and methodologies to identify such stocks. Essentially, they look for stocks that are available at a discount to their real or intrinsic value. In simple terms, this means that the market is yet to discover the true potential of these stocks and they are available at a discount.

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Value investors buy such stocks and wait for the market to discover them. When they are discovered, stock prices rise and value investors make money. This may sound simple, but it is not that easy to implement. It can take a very long time for the market to discover these stocks, and this can test your patience. They may not be discovered at all. For this reason, value mutual funds are only recommended for experienced investors.

The past few years have not been kind to value investing fans, with a few heavyweights driving the market. Value fund managers and investors complained that no one was paying attention to valuations. Everyone was willing to pay a premium to own the few stocks that drove the market, they said. In 2021, the trend reversed. The market was on the upswing, and the rally was not driven by a handful of stocks. Most stocks participated in the rally – a broad-based rally was finally here. Thanks to the rally, value funds also made a comeback. However, the dry spell taught investors some important principles of value investing.

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If you follow the principles of value investing, there may be periods when your stocks underperform in the market. In such cases, all you have to do is stick to your strategy and wait patiently. However, recent years have taught investors that following this strategy is not easy. Many investors have lost patience and sold their investments.

That’s why it’s wise to limit your investments in value funds. Mutual fund managers say investors should invest a maximum of 20% in value funds. You should also keep in mind that the market may not always pay a premium for value stocks. If the market pays little attention to valuations, value funds will underperform. If you can’t wait patiently, you shouldn’t invest in value funds.

Also read | These equity funds receive inflows of over Rs 3,000 crore in June

If value investing still interests you, here is our list of recommended value funds to invest in in July 2024. Nothing has changed in our recommended plans, so keep an eye out for our monthly updates to find out if your favorite plan is performing well.

The cheapest mutual funds for investing in July 2024:

Our methodology:
ETMutualFunds.com used the following parameters to select equity funds.

1. Average rolling returns: Rolled daily for three years.

2. Consistency over the last three years: The Hurst exponent H is used to calculate the consistency of a fund. The H exponent is a measure of the randomness of a fund’s NAV series. Funds with high H tend to have low volatility compared to funds with low H.

i) If H = 0.5, the return series is called a geometric Brownian time series. This type of time series is difficult to predict.

ii) If H 0.5, the series is said to be mean inverted.

iii) If H is 0.5, the series is said to be persistent. The larger the value of H, the stronger the trend of the series

3. Downside risk: For this measure, we only considered the negative returns offered by the mutual fund program.

X =Returns below zero

Y = sum of all squares of X

Z = Y/number of days needed to calculate the ratio

Downside risk = square root of Z

4. Outperformance: It is measured using Jensen Alpha for the last three years. Jensen Alpha shows the risk-adjusted return of a mutual fund relative to the expected market return predicted by the Capital Asset Pricing Model (CAPM). A higher alpha means that the portfolio performance has exceeded the returns predicted by the market.

Average returns of the MF program =

(Risk-free rate + Beta of MF scheme * {(Average return of index – Risk-free rate}

5. Asset size: For equity funds, the minimum asset size is Rs 50 crore

(Disclaimer: Past performance is no guarantee of future performance.)