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Fund Radar: Are value index funds worth your time?

Explore the pros and cons of value index funds. Learn why active value funds may offer better long-term consistency.

value index funds, active value funds, Nifty 50 Value 20, BSE Enhanced Value, Nifty 500 Value 50, passive value funds, active vs passive investing, PSU stocks, long-term consistency, mutual fund strategies

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Currently, we would say no. Three of the four value index funds - BSE Enhanced Value, Nifty 500 Value 50 and Nifty 200 Value 30 - can be avoided. While the fourth one - Nifty 50 Value 20 - has demonstrated strong long-term returns, we have one concern regarding them. But before we delve deeper, let's understand what value funds are. Types of value funds Active value funds: These mutual funds actively pick stocks of companies they believe are undervalued. Passive value funds: Unlike active funds, these funds don't have a manager picking stocks; they simply invest in a list of stocks present in value indices, which are chosen based on parameters like ROCE (return on capital employed), P/E (price-to-earnings) ratio, P/B (price-to-book) value and dividend yield. We are looking at these funds because one-third of all value funds follow a passive approach, with five of the 13 launched in 2024 and net inflows surging nearly fourfold, reaching Rs 1,700 crore by December 5, 2024. Now that we know the difference between active and passive value funds, let's look at how they compare. Year-wise performance Since 2021, most active value funds have consistently outperformed the BSE 500 in the post-Covid era but have lagged behind the BSE Enhanced Value, Nifty 200 Value 30 and Nifty 500 Value 50 indices. The resurgence of the three value indices this year can be credited to their 60 per cent allocation to PSU stocks. These stocks have grown at a rapid clip since 2021. On the other hand, active value funds didn't do as well owing to reduced exposure to PSU stocks from 17 per cent in December 2023 to 13 per cent (as of October 2024). Indices like BSE Enhanced Value, Nifty 500 Value 50 and Nifty 200 Value 30 outperformed the BSE 500 by approximately 9 per cent this year and did better than most active value funds. Consistency in performance If you consider five-year rolling returns (to look at an investment's long-term consistency), active value funds fared better. In fact, 11 of the 14 active value funds have outperformed BSE Enhanced Value, Nifty 500 Value 50 and Nifty 200 Value 30. Nifty 50 Value 20 is the only index to consistently outperform the active value category.

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https://www.valueresearchonline.com/stories/222590/value-index-funds-vs-active-value-funds/

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Value Research

https://www.valueresearchonline.com/

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https://www.valueresearchonline.com/stories/222590/value-index-funds-vs-active-value-funds/

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Karan Jaiswal

https://www.valueresearchonline.com/stories/author/386/karan-jaiswal/

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Value Research

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2024-12-15T00:00:17+05:30

2024-12-15T00:00:17+05:30