The Value Investing approach looks to pick\nundervalued stocks, i.e. the stocks’ current market price is lower than its\nintrinsic value, but with strong fundamentals. <\/p>\n\n\n\n
Value Investing<\/a> is digging deep to understand the valuation parameters viz.\u00a0 Price-to-Book value (P\/B), Price-to-Earnings (P\/E), Price-to-Sales, and Dividend Yield, among many other quantitative parameters to evaluate the intrinsic value of the business before buying it. <\/p>\n\n\n\n In addition, Value Investing also goes\nbeyond pure valuations (i.e. the quantitative parameters). It pays attention to\neven the qualitative ones viz. the prospects of the industry, the business of\nthe company, its business model, the management quality, and of course the\nbroader macroeconomic environment that weighs on the company\u2019s business. In\nturn, how all of these aspects augur in the journey of wealth creation for\ninvestors is assessed. So, in a way, value investing also finds its place in\nthe profound quote: “Beauty lies in\nthe eyes of the beholder<\/em>“, by the Greek philosopher Plato.<\/p>\n\n\n\n Thus, the emphasis is always on underlying\nfundamentals and true value rather than the underlying market sentiments. It is\nbased on the understanding that in the near term, the equity markets have\nlittle to do with fundamentals and are subject to irrational and excessive\nprice fluctuations due to the ingrained tendency of most people to \u2018trade\u2019,\nrather than \u2018invest\u2019.<\/p>\n\n\n\n Hence, the father of value investing, Mr\nBenjamin Graham, has said, “In the\nshort run, the market is a voting machine, but in the long run it is a weighing\nmachine.<\/em>“<\/p>\n\n\n\n (Image\nsource: freepik.com)<\/p>\n\n\n\n Is it an opportune time to invest in a Value Fund?<\/strong><\/p>\n\n\n\n Currently, although the Indian equity\nmarket has hit turbulence and wealth creation could be a challenge in 2019, the\nconcept of \u2018Value Investing\u2019 is expected to reap rewards in the long run. This\nis because the present conditions provide a good opportunity to do value\nhunting.<\/p>\n\n\n\n For investors, therefore, this makes a fair\ncase to have exposure to a \u2018Value Fund\u2019. <\/p>\n\n\n\n A \u2018Value Fund\u2019 as categorised by the\ncapital market regulator, SEBI, follows a defined style of investing, namely \u2018value\u2019\nand it is expected to maintain minimum 65% investment in equity & equity\nrelated instruments.<\/p>\n\n\n\n Thus, a fund manager of a Value Fund is\nexpected to practice \u2018Value Investing\u2019 principles and strategies for the\nportfolio construction activity. Usually, a Value Fund manager adopts a bottom-up\napproach to stock picking while investing across market capitalisation, i.e.,\nlarge-cap, mid-cap, and small-cap stocks, and sectors.<\/p>\n\n\n\n Graph: How are\nValue Funds placed on the risk-return spectrum?<\/em><\/strong><\/p>\n\n\n\n Note:\nThe chart above is for illustrative purpose only On the risk-return spectrum, Value Funds are placed relatively high \u2013 between Focused Funds and Dividend Yield Funds<\/a>. Hence, value funds aren\u2019t for the faint-hearted. Only if you are an aggressive investor, willing to take moderate-to-high risk, and have an investment time horizon of at least 5 years, you may consider owning a Value Fund in your core portfolio.<\/p>\n\n\n\n That being said, this is an opportune time to add (or hold on to) a worthy \u2018Value Fund<\/a>\u2019 in your portfolio.<\/p>\n\n\n\n Although the mainstream media is displaying a picture of gloom amidst the economic slowdown, global uncertainties, and geopolitical tensions presently, India looks to be an attractive investment destination over the long-term. India has set a goal of making India a USD 5-trillion economy by 2024-25 and has even unveiled a blueprint in its latest economic survey for 2018-19. The reforms are expected to continue, and very recently the government has announced certain structural long-term measures to reinvigorate economic growth<\/a>. The RBI is accommodative in its monetary policy stance<\/a> to address growth concerns. All these measures, in effect, in the long run, are likely to yield fruitful results. <\/p>\n\n\n\n Watch this video:\u00a0Will Value Investing Play Out in 2019 and the Challenges Ahead<\/a><\/em><\/strong><\/p>\n\n\n\n The market valuations, at present, offer a decent margin of safety across market capitalisation segments, particularly in the mid-and-small-cap space. Besides, some companies are off their 2017 highs offering a \u2018value opportunity\u2019 to discover companies with robust fundamentals at cheaper valuations. And in turn, if their conviction and assessment of these companies go right, it can generate wealth for investors in the long run. Thus, there is a good opportunity to multiply investment returns<\/a> if you select and invest in a worthy Value Fund\/s now. \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 <\/p>\n\n\n\n How\nto identify a worthy value fund?<\/strong><\/p>\n\n\n\n Managing a Value Fund is no cakewalk. It\nrequires the fund house to have a deeper understanding to ascertain whether the\ninvestment will be truly valuable or a dud in the long run. It also requires,\nat times, the courage to go against the market and take bold calls.<\/p>\n\n\n\n Hence, to select a value fund, assess the\nfollowing:<\/p>\n\n\n\n In addition, investors should also pay emphasis to a host of quantitative and qualitative parameters viz. returns (across time periods and market cycles), the risk the fund has exposed its investors to, the portfolio characteristics, the fund manager\u2019s experience, the number of schemes he\/she manages, among many other fine aspects. <\/p>\n\n\n\n You see, it is important to choose a Value Fund<\/a> that has consistently performed and comes from a mutual fund house that follows a robust investment process & systems with e\u00adffective risk management strategies in place. <\/p>\n\n\n\n Here\nare a few mistakes you should clearly avoid when you pick a value fund\/s:<\/strong><\/p>\n\n\n\n If you systematically invest in a Value\nFund, it can help you accomplish the long-term financial goals such as buying a\ndream home, your child\u2019s higher education needs, their wedding expenses, and\neven your own retirement.<\/p>\n\n\n\n But before you go ahead and add a Value\nFund in your core portfolio, do take note of the following points: <\/p>\n\n\n\n Given the current volatility in the Indian equity market, to mitigate the risk involved, consider taking the SIP (Systematic Investment Plan)<\/a> route as opposed to a lump sum investment, while you endeavour to compound your wealth leaps and bounds.<\/p>\n\n\n\n![\"\"](\"http:\/\/blog.certifiedfinancialguardian.com\/wp-content\/uploads\/2019\/09\/CFG-4-9-2019.jpg\")
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(Source: PersonalFN Research)<\/p>\n\n\n\n![\"\"](\"http:\/\/blog.certifiedfinancialguardian.com\/wp-content\/uploads\/2019\/09\/Watch-this-video-Will-Value-Investing-Play-Out-in-2019-and-the-Challenges-Ahead-2.png\")
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