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Best value funds to invest in 2020

ET Online|
Last Updated: Jun 19, 2020, 10.22 AM IST

Summary Value investors are always trying to buy stocks that they believe are undervalued in the market. They hope that the market may realise or discover the true value of these stocks one day.

Value funds or value-oriented mutual fund category is struggling to retain its relevance in the last few years. In a market where ample liquidity is chasing a few select stocks, nobody has any regard for value investing principles. That explains the struggle of the value fund category to make its mark in the last two to three years. Many proponents of value investing are waiting for commonsense to return to the market. At this point, it is unclear how long the wait is going to be.

If you are a fan of value investing, here is an update on our recommended value-oriented mutual fund schemes. There are no changes in the recommendation list in June. That means you may continue to invest in these schemes if you are a value conscious investor. What if you are new investor? Well, most value-oriented fund managers say investors can consider investing around 20% of their portfolio in value funds.

For novices, value investing is an investment 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 in the market. They hope that the market may realise or discover the true value of these stocks one day. So, they buy such stocks and hold on to them until that realization dawns on the market to make profits.

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
A word about the underperformance of IDFC Sterling Value Fund. The scheme has been in the fourth quartile for the last two months. We are watching it closely and keep you posted on its performance in our update in the next month.


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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