Value Investing in Mutual Funds: Active
vs Passive Strategies Explained

One of the wise strategies for investing in the share market (in Stocks or by way through Mutual Funds) is value investing. It entails searching for equities at a price below their actual value. Value investors seek to profit from the possibility of these stocks rising in value over time by spotting undervalued businesses. This blog will explain how investors in mutual funds could implement this investment approach in their portfolios.

Both active and passive mutual funds are options if you want to use them to invest in value equities.  First, let's examine how to use active funds to invest in value companies.

Investing In Value Stocks Using Active Mutual Funds:

There is a specific class of mutual funds that invests in value stocks. These are called value funds. These funds seek to invest in stocks which is currently trading below their fair price. Fund Manager of Value Fund anticipates that the current market price of the stock will match its actual fair value in the future and hence buy stocks at lower level.

If we see the table below, Value funds vis-à-vis other market categories and the NIFTY 50 index, value funds have beaten the Nifty 50 & other categories in 3, 5 & 10 years tenure.

Value Mutual Funds invest in undervalued stocks across all the market caps (Large, Mid & small).

(as on 05.09.2025)

Source: Value Research & Money Control

Though Value Funds have delivered higher returns, there is a problem with active value funds. They have a very diverse style of investing. It depends on what metrics they use to assess the value of a particular stock. For example, while a fund may like to use classic parameters such as the Price-Earnings ratio (P/E), Price-Book Value ratio (P/B), and dividend yield to identify value stocks, another may look for stocks that show a notable improvement in business performance going ahead.

Let’s take a look at table below. It shows a few value funds with their investment strategies.

Returns% of above-mentioned Value Funds:

Source: Value Research

Now, value investing itself can have a number of standpoints, so one can’t really criticize the funds for having different investment styles.

Nonetheless, active funds have enough flexibility to incorporate almost any stock in their portfolio due to the ability to define what value is.  Therefore, don't be shocked if you discover the identical stocks that are the top holdings of both a plain-vanilla flexi-cap fund and a value fund.

Therefore, some active fund investors might not be entirely satisfied with the stocks that the fund manager has chosen.

Passive funds are a preferable choice for value fund investors who don't want to depend on the choices made by the fund manager.

Investing In Value Stocks Using Index Mutual Funds:

The Nifty 50 Value 20 Index is a well-known value index that includes several ETFs and index funds based on it. 20 value stocks from the Nifty 50 stock group are included in this index.

The price-to-earnings ratio (P/E), price-to-book-value ratio (P/B), dividend yield, and return on capital employed (ROCE) are some of the financial criteria that are used to choose these value stocks.

The Value 20 Index includes stocks from the Nifty 50 group of equities that have greater ROCE and dividend yield and somewhat lower P/E and P/B.

This approach doesn't vary, unlike active value funds, so you can be sure that you'll always be consistently exposed to value stocks.

What is the performance of the Nifty 50 Value 20 in comparison to the Nifty 50? Let's examine the returns.

The Nifty 50 Value 20 Index has beaten the Nifty 50 in the long term.

In terms of calendar-year returns, the Nifty 50 Value 20 Index has beaten the Nifty 50 Index in 10 out of 15 years.

Calendar Year Returns:

Source: niftyindices.com

Thus, the Nifty 50 Value 20 Index has managed to do better than its Nifty 50 parent. And it’s a worthy contender for your long-term portfolio if you want to add the value investing style.

However, please remember that the Nifty 50 Value 20 index is slightly more volatile as compared to Nifty 50 index.

Standard Deviation (Volatility)

Portfolio Concentration: (as per Fact Sheet of August 2025)

Further, it contains only 20 stocks as compared to 50 stocks in Nifty 50, hence, it is more concentrated portfolio.

The Nifty 500 Value 50 Index is an additional value-based index that is accessible.  It selects 50 value equities from the larger Nifty 500 Index, as the name implies. Compared to the Value 20 Index, it is therefore more diversified. It chooses stocks using a somewhat different technique. While all other components are the same, the price-to-sales ratio is used by the index makers in this case rather than ROCE.

Conclusion:

There are a number of choices accessible to mutual fund investors that can help them become more familiar with value investing, which is a fairly popular investing approach.

Investment options include Index Funds (Nifty 50 Value 20 & NIFTY 500 Value 50) or Value Funds (Active Funds).

Retail investors can definitely consider investing in Value value-based mutual fund to design a portfolio with different styles of investing.

We hope the content above was useful to you.

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