Investor confidence in value mutual funds remains robust, with the category witnessing an inflow of Rs 1,556 crore in January, indicating a shift in their focus towards fundamentally strong yet undervalued stocks.
This represents a slight increase from the Rs 1,514 crore inflow registered in December, according to data from industry body Association of Mutual Funds in India (Amfi).
However, despite the inflow, assets under management (AUM) in this category declined from Rs 1.88 lakh crore in December to Rs 1.83 lakh crore in January.
This decline in AUM highlights some challenges, but the outlook for value funds in 2025 remains optimistic.
Santosh Joseph, Co-founder and CEO of Germinate Investor Services, said the future of value funds will largely depend on sectoral trends and macroeconomic conditions.
"The key sectors that drove the value fund rally in 2023 and 2024, including metals, real estate, construction, capital goods, PSUs, and manufacturing, are expected to maintain their strength.
"This will be bolstered by continued government infrastructure spending and industrial expansion," Joseph said.
As long as these sectors continue to show resilience and growth potential, value investing is likely to remain an attractive strategy in 2025, he added.
Value stocks, typically undervalued at the time of purchase but with strong fundamentals and growth potential, are often contrasted with growth stocks, which focus on companies with significant future growth prospects.
Additionally, the mutual fund industry is witnessing a shift in investor demographics, with folios increasing by over 1 lakh to 81 lakh as of January.
This indicates that long-term investors are increasingly seeking stability amid the current uncertain macroeconomic environment.
Bhavesh Damania, Founder of Wisdom Edge Investments, an Amfi registered Mutual fund distributor, said, "Value investing requires patience and a long-term perspective.
"While it may face short-term volatility, its disciplined approach often rewards investors with superior returns over time."
For retail investors, this could be an ideal time to consider adding a value fund to their portfolios, especially in light of recent market fluctuations.
The launch of the new fund offers (NFOs) in the category provides an opportunity to create a fresh portfolio.
With recent market corrections providing attractive stock prices, the fund manager can select quality stocks at good value.
This strategy helps investors build a strong portfolio aimed at long-term growth.
Several value mutual funds are currently available for subscription, including the Mahindra Manulife Value Fund, which launched its NFO on February 7.
This fund will adopt a bottom-up approach, using growth metrics, management quality, cash flow parameters, and valuation multiples to identify firms with valuation gaps and potential for re-rating.
Looking back, value mutual funds attracted Rs 22,757 crore in inflows in 2024, almost double the amount seen in 2023 driven by strong returns.
On average, these funds delivered returns of over 21 per cent in 2024, with nearly 20 per cent returns over the past three years, according to industry data.
Experts suggest that investors who diversify their portfolios across large-cap, mid-cap, and flexi-cap funds may be better positioned to navigate the evolving market landscape, ensuring balanced risk and opportunity.
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