Best value funds to invest in 2020

Though value funds have benefited from the recent rally, they are still not out of trouble. The six-month returns of these schemes look impressive, but long-term returns are still anemic.

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

However, we have an update on the poor performance of one of the recommended schemes in the list: IDFC Sterling Value Fund. As per our methodology, the scheme has been in the fourth quartile for the last eight months. HDFC Capital Builder Value Fund was in the third quartile last month. We will be watching these funds closely and update on their performance in our monthly updates every month.

  • 12.39%Annualized Return for 3 year
  • >3 years Suggested Investment Horizon
  • 4.2 YearsTime taken to double money
  • 6.98%Annualized Return for 3 year
  • >3 years Suggested Investment Horizon
  • 3.8 YearsTime taken to double money
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 caution: 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. Also, many investors have no problem paying through their nose for those high performers. In short, nobody is paying attention to value in the market which is driven mostly by liquidity, say fund managers. Though value funds have gained during the current rally, they are still not out of the woods.

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, 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 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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