Value Fund

The idea behind value

A value fund tries to answer one question: which good businesses is the market currently mispricing? Instead of chasing fast-growing, expensive stocks, the manager hunts for companies trading below what their assets, earnings or cash flows suggest they are worth, betting the gap closes over time.

In India this is a defined SEBI category. Value funds sit within the equity bucket, which historically required at least 65% of assets in equity and equity-related instruments. The strategy tends to favour out-of-favour sectors, cyclical businesses and stocks with low price-to-earnings or price-to-book ratios.

How SEBI frames it

SEBI tightened the mutual fund classification rules in early 2026. Among the changes, the mandatory minimum equity allocation for certain conviction categories, including value, focused, contra and dividend-yield funds, was raised, pushing these schemes to stay more fully invested and true to their stated style.

The rules also addressed the old overlap problem. Earlier an AMC could run either a value fund or a contra fund but not both. Under the revised framework an AMC may offer both, provided the portfolio overlap between the two stays within a set limit. This matters because both styles can look similar in practice.

What investors should expect

Value investing demands patience. A cheap stock can stay cheap for years before sentiment turns, so these funds can lag growth-oriented schemes during momentum-driven bull runs, then outperform when the cycle rotates.

They suit investors with a long horizon who are comfortable with periods of underperformance and who believe disciplined bottom-up stock picking eventually pays off. As with any equity fund, returns are not guaranteed and gains are taxed as equity capital gains under prevailing Indian rules. Always check the scheme's track record across full market cycles, not just a hot year or two.