Is this a good time to enter value funds? Here's what investors should know

Inflows into value funds rose from ₹24.4 crore in August to ₹1,290.89 crore in September, according to data from the Association of Mutual Funds in India (Amfi). The surge comes at a time when the prolonged time correction in the market has created opportunities to buy undervalued businesses.

Value funds invest in fundamentally sound businesses available at prices that offer an adequate margin of safety.

Why inflows have risen

The market correction and wider differences in stock valuations have revived interest in value strategies. “Elevated valuations of growth stocks encourage investors to look beyond recent winners for businesses whose prices do not reflect their underlying potential,” says Unmesh Kulkarni, managing director and group product head, The Wealth Company.

The desire for style diversification within the portfolio may also have contributed to interest in the category.

“Value funds have in the past outperformed during market declines or periods of muted returns. Investors also view them as an option to reduce portfolio falls during volatility,” says Rajan Sarkar, director & unit head, Anand Rathi Wealth.

Funds mobilisation by a new scheme also contributed to September inflows. The Bank of India Value Fund new fund offer attracted ₹361 crore, around 28 per cent of the total inflows into the category.

Experts warn that the inflow surge should not be viewed as a wholesale shift away from growth investing.

Valuation-led opportunities

Experts say the current environment warrants examining value opportunities.

On October 12, 2026, the Nifty 500 Value 50 traded at approximately 9.7 times earnings, compared with roughly 21.8 times for the Nifty 500. Its price-to-book ratio was around 1.23, against about 3.1 for the broader index.

“Current levels could offer an entry point to participate in the eventual recovery,” says Sarkar.

Watch out for value traps

Many of the value stocks these funds invest in could turn out to be value traps. “Low valuations may conceal deteriorating businesses or weakening competitiveness. A low earnings multiple can also reflect concerns about whether earnings are sustainable or the capital requirements of a business,” says Kulkarni.

There is always the risk that the expected recovery in a stock may never materialise. Even sound businesses can at times remain undervalued for years, until a trigger appears.

The returns of value funds tend to be cyclical — strong performance is often followed by muted or negative returns. “Value strategies can lag growth strategies for prolonged periods when markets favour earnings visibility, structural growth and momentum over valuation discipline,” says Kulkarni.

An economic slowdown or adverse commodity cycle can also weaken earnings in sectors heavily represented in value portfolios.

Match strategy to horizon

Value funds suit long-term investors who can stay invested across cycles. “Commit to a holding period of at least five to seven years to allow mispriced equities to recover across a full economic cycle,” says Abhishek Kumar, Securities and Exchange Board of India (Sebi)-registered investment adviser and founder, SahajMoney.com.

Both active and passive options are now available within the value fund category. “Active value funds suit investors who rely on professional managers to navigate corporate turnarounds and avoid value traps in inefficient market segments,” says Kumar. Passive value funds that track factor indices suit cost-conscious investors who prefer a transparent, rules-based approach with lower expenses.

Value funds could form around 10–20 per cent of a diversified equity portfolio as a satellite allocation. Build exposure gradually through staggered investments. “A systematic investment plan (SIP) can mitigate entry-timing risks,” says Kumar.

Look beyond past returns

Experts say past performance is a poor predictor of fund returns over the next three to five years in active funds. “Look for a repeatable, clearly articulated investment process that has held up across market cycles,” says Nitin Agrawal, CEO, Mutual Funds, InCred Money. Examine portfolio concentration, portfolio turnover, and downside management. Compare average price-to-earnings and price-to-book ratios with broader benchmarks.

“Check whether the manager has consistently adhered to a strict value mandate without drifting into other styles,” says Kumar.

What should existing investors do

Existing investors should continue their SIPs, even increase their contributions if they can afford to do so. “Volatility supports rupee-cost averaging, and market corrections can lower the average acquisition cost in a portfolio,” says Agrawal.

Rebalance when the strategic asset allocation drifts significantly from initial targets. “An exit becomes appropriate when underperformance stems from poor stock selection and persistent style drift,” says Kumar. A normal cyclical phase of temporary headwinds does not, by itself, justify exiting a value fund.

The writer is a Mumbai-based independent journalist