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    Best value funds to invest in 2020

    Synopsis

    IDFC Sterling Value Fund has been in the fourth quartile for the last six months. We are watching it closely and update you on its performance in our monthly update in the next month.

    iStock
    Here is the update on our recommended value-oriented mutual fund schemes in October. The good news is there are no changes in the recommendation list this month. That means you may continue to invest in these schemes if you are a value conscious investor.

    However, we have a word about the performance of IDFC Sterling Value Fund. As per our methodology, the scheme has been in the fourth quartile for the last six months. We are watching it closely and update you on its performance in our monthly update in the next month.

    What if you are a new investor who likes value investing strategy? Well, most value-oriented fund managers say investors can consider investing around 20% of their portfolio in value funds. A word of cation: value funds have been going through a tough phase in the last few years because of the peculiar conditions in the stock market where the rally has been driven by a few stocks.

    Things You should consider
    • Annualized Return
      for 3 year: 4.09%
    • Suggested Investment
      Horizon: >3 years
    • Time taken to double
      money: 3.11 Years
    Things You should consider
    • Annualized Return
      for 3 year: -0.75%
    • Suggested Investment
      Horizon: >3 years
    • Time taken to double
      money: 3.5 Years
    For novices, value investing is a strategy that looks to buy stocks that are trading below their intrinsic or true value. In other words, value investors are always trying to buy stocks that they believe are undervalued, hoping that the market may realise or discover the true value of these stocks one day. So, they buy such stocks and hold them until that realization dawns on the market to make profits. It takes time and requires a lot of patience.

    That is why these schemes are recommended only for investors who want to stick to value investing principles to create wealth over a long period. It takes time to pay, and investors should have a lot of patience.

    To make life easier for you, ETMutualFunds.com has put together a list of value-oriented equity mutual fund schemes that you may consider to invest to achieve your long-term financial goals. If you are looking for schemes that follow a value investing strategy, you can consider investing in these schemes with a longer investment horizon. As said earlier, keep in mind that the value fund category is going through tough phase. Don't expect them to offer you outlandish returns overnight.

    Best value funds to invest in 2020
    • Inevsco India Contra Fund
    • Tata Equity PE Fund
    • IDFC Sterling Value Fund
    • HDFC Capital Builder Value Fund

    Methodology

    ETMutualFunds.com has employed the following parameters for shortlisting the Equity mutual fund schemes.

    1. Mean rolling returns: Rolled daily for the last three years.

    2. Consistency in the last three years: Hurst Exponent, H is used for computing the consistency of a fund. The H exponent is a measure of randomness of NAV series of a fund. Funds with high H tend to exhibit low volatility compared to funds with low H.

    i) When H is equal to 0.5, the series of return is said to be a geometric Brownian time series. These type of time series is difficult to forecast.
    ii) When H is less than 0.5, the series is said to be mean reverting.
    iii) When H is greater than 0.5, the series is said to be persistent. The larger the value of H, the stronger is the trend of the series

    3. Downside risk: We have considered only the negative returns given by the mutual fund scheme for this measure.

    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 funds, the threshold asset size is Rs 50 crore

    (Disclaimer: past performance is no guarantee for future performance.)
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    1 Comment on this Story

    Tarun Garg129 days ago
    bad exp
    The Economic Times