1. Having now been recognized by Sebi as a distinct equity category, Value funds will essentially comprise of undervalued stocks, mostly characterized by lower PBV & PE ratios or high dividend yields, with lesser immediate expectations, but with potential to deliver superior long-term returns.
2. A "selection" risk exists in these stocks when entire market becomes overvalued, making them appear to be inexpensive, although it's not so.
3. A "value trap" risk also exists when the fund manager selects stocks from those that pay high dividends, as a sign of financial stability, which he feels to be good valuation picks, but their prices may continue to drift lower, with anticipated turnover never happening, eventually forcing him to bail out at a loss.
4. Value funds tend to underperform in rising markets, as they don’t invest in high-growth and high-valuation stocks, whereas investors are willing to pay a premium for future growth at that point of time.
5. Value funds, therefore, require an investor's patience, with time in hand, with the hope that all norms will be properly enforced by companies of those stocks, so that their "hidden" value could be properly uncovered.
2. A "selection" risk exists in these stocks when entire market becomes overvalued, making them appear to be inexpensive, although it's not so.
3. A "value trap" risk also exists when the fund manager selects stocks from those that pay high dividends, as a sign of financial stability, which he feels to be good valuation picks, but their prices may continue to drift lower, with anticipated turnover never happening, eventually forcing him to bail out at a loss.
4. Value funds tend to underperform in rising markets, as they don’t invest in high-growth and high-valuation stocks, whereas investors are willing to pay a premium for future growth at that point of time.
5. Value funds, therefore, require an investor's patience, with time in hand, with the hope that all norms will be properly enforced by companies of those stocks, so that their "hidden" value could be properly uncovered.