3 Best Value Funds for 2025 - Top Performing Value Mutual Funds in India

In the year 2024, Value Funds exhibited impressive performance generating average returns of 23%. The top-performing scheme in the category offered about 29% absolute returns during the year while over 14 schemes delivered returns of 20% or more.

In this article, find out the 3 best performing Value Mutual Funds that are worth monitoring in 2025. Before we move on to the list, let us first get to know about the category in detail.

What are Value Funds?

SEBI defines Value Funds as equity-oriented mutual funds that follow the value-investment strategy, investing a minimum of 65% of its assets in equity and equity-related instruments. These funds have the flexibility to invest across market capitalisation and sectors.

The value-investment strategy aims to identify the hidden potential of undervalued stocks. A stock could be undervalued because many 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 will likely overcome any hurdles over time. Consequently, over a period, its stock price will begin to reflect its actual worth.

It is important to note that not every stock that is trading at a significant discount to its historical average is considered a 'value buy'; some of these stocks can turn out to be 'value traps'. It is vital to discover the true worth of a stock (rather than chasing it merely because it is available cheap).

Thus, for the portfolio construction activity, the fund manager of a Value Fund usually follows a bottom-up approach to stock-picking.

They use various valuation metrics such as P/E ratio, P/B ratio, EBIT, EBITDA, cash flows, etc., along with profitability ratios such as ROCE, ROE, and ROA, among others, to judge the future potential of the stocks. The fund managers also analyse a host of qualitative aspects of the company, such as its economic moat, circle of competence, economies of scale, the market in which it operates, brand value, management quality, corporate governance and culture, amongst a host of other factors.

Will Value Funds continue to do well in 2025?

The Indian equity market has witnessed a stellar run in the last couple of years driven by factors such as favourable government policies, infrastructure boost, and a young demography. Going ahead if a momentum-driven rally dominates the market in 2025, Value Funds may underperform. That said, value opportunities may continue to exist in certain segments of the market as well as certain stocks within overvalued segments that have underperformed in recent years, offering high long-term potential.

it is important to note that numerous stocks across market caps and sectors now appear expensive and the margin of safety has narrowed. So, if the market witnesses corrections due to various headwinds in play such as inflationary pressures, geopolitical tensions, and a weak consumption growth, or if the corporate earnings growth fail to meet the expectations, Value Funds may protect the downside risk better.

Regardless of how the equity market movement pans out in 2025, Value Funds offer an attractive long-term opportunity for those looking for a suitable scheme for the defensive portion of the equity portfolio, helping you balance risk and reward.

Who Should Invest in Value Funds?

Since Value Funds invest in undervalued/out of favour stocks, the fund managers' bets may take time to pay off. Therefore, Value Funds may underperform in the short to medium term, particularly when market rallies are momentum-driven. However, over the long term, Value Funds can generate returns in line with growth-oriented funds or even outperform them. Moreover, since undervalued stocks have a better margin of safety, they may protect the downside risk better when compared to growth-oriented funds during bearish market phases and subsequently outperform during stages of market recovery.

Hence, patience and perseverance are the key when it comes to value investing. Value Funds can form a part of the 'Core' portfolio of investors who are aiming for diversification across investment styles and if the investment horizon is at least 5-7 years. Notably, diversification across investment styles can reduce the downside risk and help investors earn optimal returns because if one approach fails to generate meaningful returns, the other may generate better returns.

How are Value Mutual Funds taxed?

Value Funds follow equity taxation. With effect from July 23, 2024, if you sell your Value Mutual Funds units within 12 months, the gains will be subject to short-term capital gains (STCG) tax of 20% compared to 15% earlier.

On the other hand, if you sell your Value Mutual Funds units after completing one year, the gains will be subject to long-term capital gains (LTCG) tax of 12.5% compared to 10% earlier, but only if the gains exceed Rs 1.25 Lakh in a financial year.

Which are the best Value Funds for 2025?

Best Value Fund for 2025 #1: JM Value Fund

Originally launched in June 1997, JM Value Fund was earlier categorised as a Sectoral Fund. However, in 2018 the fund underwent recategorisation and was renamed as JM Value Fund focusing on stocks whose value has not yet been recognized by the market in spite of strong fundamentals.

While the past performance is not comparable due to the change in investment mandate, JM Value Fund has turned out to be a category outperformer by delivering robust gains in recent years. Its dynamic investment approach and substantial exposure to lower market cap has enabled it to generate high alpha over the years.

In the last 3 years, JM Value Fund has recorded growth at a CAGR of 28.9% on a rolling return basis, higher than the growth of 18.1% in the benchmark BSE 500 - TRI index.

Large-cap names such as Infosys, HDFC Bank, Dr Reddy's Laboratories, ICICI Bank, and Wipro form part of the fund's top holdings. Sectorwise, the fund's holding is currently inclined towards Banking & Finance, Pharma & Healthcare, Infotech, and Auto & Auto Ancillaries that collectively form around 55% of its assets.

JM Value Fund actively adjusts its portfolio and maintains a well-balanced exposure in each market cap and segment to capitalise on varying market conditions. With dynamic portfolio strategies complemented by an emphasis on quality stocks, the fund has the potential to perform well in the long run.

Best Value Fund for 2025 #2: HSBC Value Fund

Launched in January 2010, HSBC Value Fund was previously known as L&T Value Fund but was renamed when HSBC acquired the mutual fund arm of L&T. The fund follows a blend of value and growth style of investing in which the fund managers aim to invest in high growth-oriented stocks but are vary of the price they are willing to pay.

Under the guidance of seasoned fund manager, Mr Venugopal Manghat, who has been managing the scheme for over a decade, the has managed to reward its long-term investors. The fund is benchmark and market cap agnostic and holds a well-diversified portfolio spread across market segments.

In the last 3 years, HSBC Value Fund has recorded growth at a CAGR of 26.7% on a rolling return basis, higher than the growth of 18.1% in the benchmark Nifty 500 - TRI index.

Its top holdings comprise a mix of large-cap, small-cap, and mid-cap names such as ICICI Bank, Multi Commodity Exchange of India, HDFC Bank, KEC International, Tech Mahindra, and The Federal Bank. The fund has restricted exposure in each stock to under 5%. The fund's sectoral exposure is dominated by Banking & Finance, followed by Infotech, Infrastructure, Consumption, Metals, and Auto.

It is noteworthy that HSBC Value Fund's performance often takes a backseat during bear market phases. However, the fund stands out for its performance track record during bull market rallies, during which it has managed to substantially outperform the benchmark and the category peers, thereby rewarding investors over complete market cycles.

Best Value Fund for 2025 #3: Templeton India Value Fund

Launched in September 1996, Templeton India Value Fund is one of the oldest schemes in the value fund category. The fund's past performance was below ordinary and it often found a place among the bottom performers in the category. However, the fund has shown a remarkable recovery in the last few years to find a spot among the top performers in the Value Fund category.

Templeton India Value Fund aims to build a high-conviction portfolio of undervalued stocks picked through a bottom-up value investing approach and follows a buy-and-hold approach to derive its full potential.

In the last 3 years, Templeton India Value Fund has recorded growth at a CAGR of 26.2% on a rolling return basis, higher than the growth of 18.1% in the benchmark Nifty 500 - TRI index.

Templeton India Value Fund invests predominantly in large caps, along with substantial allocation in small caps. Its top holdings comprise popular bluechips such as HDFC Bank, Axis Bank, Reliance Industries, ICICI Bank, and ITC. Sectorwise, the fund is bullish on Banking while it also holds diversification in Petroleum, Pharma, Infotech, Consumption, and Auto.

The superior performance in recent years has improved its returns across time frames and has helped it to outpace the benchmark and the category average by a significant margin. With a portfolio spread across diverse stocks and sectors, it has the potential to reward investors in the long run.

Conclusion

Value Funds aim to capitalise on attractively priced stocks across market caps, offering an opportunity to benefit from subsequent recovery and long-term growth.

As mentioned earlier, Value Funds invest in undervalued/out of favour stocks, and therefore the fund managers' bets may take time to pay off. Therefore, Value Funds may underperform in the short to medium term. However, over the long term, Value Funds can generate returns in line with growth-oriented funds or even outperform them.

Considering the volatile and uncertain nature of the equity market, it will be better to take the Systematic Investment Plan (SIP) route when you invest in the best Value Mutual Funds.

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Note:  This write up is for information purpose and does not constitute any kind of investment advice or a recommendation to Buy / Hold / Sell a fund. Returns mentioned herein are in no way a guarantee or promise of future returns. As an investor, you need to pick the right fund to meet your financial goals. If you are not sure about your risk appetite, do consult your investment consultant/advisor. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully. Registration granted by SEBI, Membership of BASL and certification from NISM no way guarantee performance of the intermediary or provide any assurance of returns to investors.

The securities quoted are for illustration only and are not recommendatory.

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DIVYA GROVER is the co-editor for FundSelect, the flagship research service of PersonalFN. She is also the co-editor of DebtSelect. Divya is an avid reader which helps her in analysing industry trends and producing insightful articles for PersonalFN’s popular newsletter – Daily Wealth letter, read by over 1.5 lakh subscribers.
Divya joined PersonalFN in 2019 and has since then used stringent quantitative and qualitative parameters to analyse funds to provide honest and unbiased research to investors. She endeavours to enable investors to make an informed investment decision and thereby safeguard their wealth.

Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.
This article is for information purposes only and is not meant to influence your investment decisions. It should not be treated as a mutual fund recommendation or advice to make an investment decision in the above-mentioned schemes.