Value funds delivered an average return of 8.6% in 2025, despite the equity market remaining range-bound during the year. The performance placed value funds second among equity fund categories, after large-cap funds, which recorded an average return of 9.7% during the same period.
Value funds invest in companies whose market prices are perceived to be below their intrinsic value, with the expectation that prices will align with fundamentals over time. Certified Financial Planner Parul Maheshwari said the core principle of value investing is that markets eventually recognise the true worth of such stocks, leading to returns for investors.
Data from the Association of Mutual Funds in India showed that, as of November 30, 2025, 25 value funds together managed assets under management of ₹2.17 lakh crore.
Market participants expect an improvement in corporate earnings in 2026, which could create favourable conditions for equities. Funds investing at appropriate valuations may benefit from such an environment. Dharmesh Kakkad, senior fund manager at ICICI Prudential Asset Management Company, said that while broader indices are trading at high valuations, several individual stocks have underperformed, creating opportunities to acquire quality companies at reasonable prices.
Value funds tend to perform well during periods of leadership change in the market and the onset of sector rotation. Jitendra Shriram, senior fund manager at Baroda BNP Paribas Mutual Fund, said value strategies benefit when markets move away from exhausted themes and capital shifts to new sectors. He added that tax cuts, changes in the goods and services tax framework, and policy easing by the Reserve Bank of India have increased investor focus on consumption-oriented sectors.
Kakkad said patience is critical in value investing, as it can take time for intrinsic value to be reflected in share prices. He noted that there are phases when value-oriented strategies may not generate returns, as different investment styles such as momentum, growth, or quality outperform at various stages of the market cycle.
In actively managed value funds, the fund manager’s role remains central, with outcomes dependent on the identification and assessment of value and the timing of investments. Investors seeking to reduce fund-manager-related risk and costs may consider value index funds with larger assets under management and lower tracking error.
Maheshwari said value funds are suitable for investors with a long-term investment horizon, typically exceeding five years, and are best accessed through systematic investment plans. She added that investors with shorter horizons of one to three years and those focused on following market trends should avoid such funds.
Shriram said allocation to value funds should depend on an investor’s risk tolerance. He said value funds generally serve as a satellite component of portfolios, with a 15–25% allocation being adequate for retail investors, while high-net-worth individuals may allocate a larger share. Aggressive investors may also deploy lump-sum investments alongside systematic plans during market corrections.
