Invest for style diversification, with 7-yr horizon

While value-style funds have performed well since 2020, investors should not enter these funds expecting similar gains over the short term.

- HIMALI PATEL

Instead, they should go for them to diversify their portfolios, which are often skewed towards growth funds.

How do these funds work?

Value funds invest in stocks trading below their intrinsic value. "The price of a stock often fluctuates and goes below its intrinsic value due to multiple factors. A value fund identifies this gap and aims to benefit from this differential," says Krishna Sanghavi, chief investment officer of equity, Mahindra Manulife Mutual Fund, which recently launched a fund in this category (new fund offer closes on February 21). Managers of these funds view undervaluation as temporary.

"These stocks may be temporarily undervalued due to non-fundamental reasons, such as market sentiment or sectoral underperformance," says Ihab Dalwai, senior fund manager, ICICI Prudential Mutual Fund.