Long-term investments in equity mutual funds have the potential to provide good returns and ride out market volatility in the long term. In equity markets, a period of 3 years or more, can be safely described as long-term. Among a variety of sub-categories of equity mutual funds, a Value Fund could be an appropriate choice to invest for the long term.
A Value Fund invests a minimum of 65% of its assets in equity and equity-related instruments by following a value style of investing. While pursuing the value style, the fund could invest across market capitalisation and sectors. The value style of investing focuses on identifying and investing in undervalued stocks that are trading at a price lesser than their intrinsic value. A stock that is trading at a significant discount to its historical average is considered a ‘value buy’; A stock could be undervalued because a large number of investors may not have discovered it yet, or there could be a misperception about the company due to recent events. However, if the company is fundamentally strong, it is likely to overcome any hurdles over time. And consequently, its stock price will begin to re-rate and reflect its actual worth.
A Value Fund for its portfolio construction activity uses a variety of metrics such as the following:
Price to earnings ratio
Price to book value
Price to sales multiple
Price to cash flow
Earnings Before Interest Tax Depreciation and Amortization (EBITDA)
In addition to the valuation metrics, Quantum Long Term Equity Value Fund also evaluates the following:
The business of the company
The environment in which it operates
The management and their long term goals
Can the financials support these goals?
This helps in understanding the valuations, the margin of safety available, and the future prospects of the respective company under consideration. Moreover, attention is also paid to qualitative aspects such as the circle of competence of the company, whether it has enough economic moat brand value, patenting of its products, the economies of scale at which it operates, the management quality, corporate governance practices and culture, how are minority shareholders treated, among a host of other things. That’s why value investing finds its place in the profound quote, "Beauty lies in the eyes of the beholder" by the Greek philosopher, Plato. A bottom-up approach is usually followed by the professional fund manager/s of a Value Fund.
A Value Fund sells its investments mainly when the fund management team believes the market price of the shares has exceeded its assessment of the long-term value of that company, or if there are adverse changes to that company's management, prospects or the markets in which that company operates. This evaluation is again based on the valuation metrics, changes in the qualitative aspects of the respective companies, and the overall equity market scenario.
As a Value Fund invests in undervalued stocks, some of the investments may not pay off quickly. It could underperform over the short-to-medium term. Likewise, when the market conditions are favouring growth investing or there is a polarised market rally (wherein only a handful of stocks are lifting the benchmark index), a Value Fund’s performance could lag compared to the other sub-categories of equity mutual funds following a growth style. But when the tide turns in favour of value investing, which sees a re-rating of stocks and there is a broad-based rally driven by fundamentals and earnings upgrades, a Value Fund could outperform thus creating value for its investors.
Managing a Value Fund requires the fund house to have a deeper understanding to ascertain whether the investment will be truly valuable in the long run. It also requires, at times, the courage to go against the market and take bold calls. When choosing a Value Fund for your mutual fund portfolio, evaluate…
The investment strategy followed by the scheme
Portfolio characteristics of its current and historical portfolio (to see if the Value Fund has truly stuck to value investing principles)
Whether the fund manager is holding the portfolio with conviction or is indulging in a momentum play
The returns across longer time periods (3 years, 5 years, 7 years, since inception)
The performance across market cycles
The risk-adjusted return generated over 3 years or more
The expense ratio
Furthermore, it would serve well to understand the investment ideologies, processes and systems at the fund house. Never make the following mistake when investing in a Value Fund…
Uses a bottom-up stock selection process to minimize risk
Follows a disciplined research and investment process
Has a low portfolio turnover
Holds cash when stocks are overvalued - no derivatives and no hedging
Has one of the lowest expense rations in its category
Quantum Long Term Equity Value Fund (QLTEVF) is dedicated to picking the best companies that can take advantage of India’s growth story. An investment in QLTEVF will primarily help investors give their investment equity exposure with the potential to achieve long-term capital appreciation.
Under the IDCW option (earlier known as the dividend option), as per the current income-tax law, the dividends are taxable in the hand of the assessee (the investor) as per the applicable income-tax slab rate. TDS is levied at a rate of 10% on dividend income over Rs 5,000 received from mutual funds. In the case of capital gains, the Short-Term Capital Gains (holding period of less than 12 months) are taxed at the rate of 15% (plus surcharge and cess as applicable). While if it’s a Long Term Capital Gain (holding 12 months or more), the gains above Rs 1 lakh in the financial year are taxed at the rate of 10% (plus surcharge and cess as applicable). So, effectively LTCG up to Rs 1 lakh is tax-free.
Quantum Mutual Fund offers several mutual fund schemes in India that invest in equities, Gold, bonds, multiple asset. The company allows investors to start an SIP in any of its schemes with an amount as low as ₹500, besides offering an option to hold the units in the Demat mode.
A Value Fund is suitable for investors with a very high-risk appetite looking for long-term capital appreciation. It is important to keep an investment time horizon of 3 to 5 years or more when investing in Value Fund. Choose a Value Fund carefully, and if in doubt speak to your investment adviser before investing. Be a thoughtful investor.
|Name of the Scheme||This product is suitable for Investors who are seeking*||Risk-o-meter of Scheme|
Quantum Long Term Equity Value Fund
An Open Ended Equity Scheme following a Value Investment Strategy.
• Long term capital appreciation
• Invests primarily in equity and equity related securities of companies in S&P BSE 200 index
Investors understand that their principal will be at Very High Risk.
*Investors should consult their financial advisers if in doubt about whether the product is suitable for them.
Disclaimer: The views expressed here in this Article / Video are for general information and reading purpose only and do not constitute any guidelines and recommendations on any course of action to be followed by the reader. Quantum AMC / Quantum Mutual Fund is not guaranteeing / offering / communicating any indicative yield on investments made in the scheme(s). The views are not meant to serve as a professional guide / investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument or mutual fund units for the reader. The Article / Video has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst no action has been solicited based upon the information provided herein, due care has been taken to ensure that the facts are accurate and views given are fair and reasonable as on date. Readers of the Article / Video should rely on information/data arising out of their own investigations and advised to seek independent professional advice and arrive at an informed decision before making any investments. None of the Quantum Advisors, Quantum AMC, Quantum Trustee or Quantum Mutual Fund, their Affiliates or Representative shall be liable for any direct, indirect, special, incidental, consequential, punitive or exemplary losses or damages including lost profits arising in any way on account of any action taken basis the data / information / views provided in the Article / video.
Mutual fund investments are subject to market risks read all scheme related documents carefully.
Quantum Long Term Equity Value Fund -QLTEVF is an Open Ended Equity Scheme following a Value Investment Strategy which is a diversified equity fund. By this we mean that Quantum Long Term Equity Value Fund invests in shares of various companies across sectors and is not a sector - specific fund. Open Ended Scheme means it is open for purchase and redemption on all business days. Investors can conveniently buy and sell units at Net Asset Value ("NAV”) based prices offering complete liquidity.
The investment objective of the scheme is to achieve long-term capital appreciation by investing primarily in shares of companies that will typically be included in the two benchmark Tier 1 Benchmark: S&P BSE 500 TRI Tier 2 Benchmark: S&P BSE 200 TRI and are in a position to benefit from the anticipated growth and development of the Indian economy and its markets.
The Benchmark Index for the Quantum Long Term Equity Value Fund is Tier 1 S&P BSE 500 - Total Return Index (TRI) and Tier 2 S&P BSE 200 - Total Return Index (TRI) . It appropriately represents the returns from the S&P BSE 500 S&P BSE 200 Index since it includes the dividend received from the S&P BSE 500 and 200 companies.
Mr. George Thomas and Mr Christ Mathai are managing the Quantum Long Term Equity Value Fund.
Please refer below table for the minimum amount required to invest or redeem in the Quantum Long Term Equity Value Fund.
|Minimum Amount||Amount in Rs.|
|Initial Investment||Rs. 500/- and multiples of Re. 1/- thereafter|
|Additional Investment||Rs. 500/- and multiples of Re. 1/- thereafter / 50 units|
|Redemption/ Switch Out||Rs. 500/- and multiples of Re. 1/- thereafter OR account balance whichever is less / 50 units|
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