Ever walked into your favourite ice cream parlour and couldn’t decide between reliable vanilla or try a bold new flavour? That’s what choosing between growth and value mutual funds can feel like. If you are new to the mutual fund world, it is important to understand that not all mutual funds grow your wealth the same way – some funds chase rising stars, while some seek hidden gems. Understanding this difference between investment styles is not important for beginners, it’s essential for anyone seeking to maximise their gains. In the end, the ideal mutual fund is the one that matches your risk appetite and end goal.
Let’s dive deeper into these two investment styles to help you pick the mutual fund that suits you best.
What are Value Funds?
Value mutual funds are like treasure hunters in the investing world – they are always on the lookout for quality stocks. These mutual funds seek to invest in stocks that are currently trading below their true value. These companies usually boast strong fundamentals, such as solid balance sheets, steady earnings, and long-term potential. The idea behind this investing style? Buy low, stay patient while the price of the stocks increases, reflecting their true intrinsic value, and maximise returns by compounding.
However, on the other side, unlike growth stocks, value investing may take a while to shine – but when they do, it has rewarded its investors for their patience quite handsomely. Bandhan Sterling Value Fund, for instance, focuses on picking quality stocks in mutual industries that are overlooked, aiming to provide steady returns over time. Value funds are recommended to investors who prefer stability over hype.
What are Growth Funds?
Growth mutual funds are like the go-getters in the investing world – they are always chasing down stocks that are looking to outpace their peers. These mutual funds seek to invest in companies with innovative products and strong potential for rapid earnings. Think of future market leaders in the market. The idea behind this investing style? Buy low, and ride the market while the value of the stocks increases along with the company’s expansion plan.
However, it’s important to remember that the excitement of growth funds comes with a trade-off—greater volatility. These funds can experience sharper ups and downs during market swings, but historically, they’ve shown resilience, often bouncing back strongly from bear markets and rewarding patient investors with impressive long-term returns. Axis Growth Opportunities Fund, for example, targets high-growth industries, aiming to tap into long-term wealth creation. Growth funds are recommended to investors who are willing to ignore short-term bumps for a chance at much bigger gains down the road.
Key Differences: Value vs Growth Funds
Here’s a more detailed comparison between these two investment styles:
| Feature | Value Funds | Growth Funds |
| Investment Focus | The funds focus on undervalued stocks. | The funds focus on emerging high-growth stocks. |
| Risk Level | The funds carry low to moderate risk levels. | The funds carry moderate to high-risk levels. |
| Returns | The funds provide steady returns over long-term periods. | The funds provide potentially higher returns over long-term periods but may also face short-term losses. |
| Dividend Payouts | The funds often offer dividends to investors. | The funds are usually reinvested in the profits earned. |
| Market Phase Preference | The funds generally perform well in sideways/bearish markets. | The funds generally excel in bullish market phases. |
Which One Should You Choose?
Still confused? Here’s your quick cheat sheet. Choosing between growth and value funds does not have to be overwhelming – just match the fund style to your mindset.
Conservative investor with low-risk appetite? Consider value funds – they focus on stability and graduation wealth creation. Prefer high returns and don’t mind a bit of market drama? Growth funds could be your ideal match – they offer high growth potential and excel when the market is on the rise. And if you are somewhere in the mix or simply want the best from both sides, you can always have a mix of both funds in your portfolio or look for a blend fund.
The correct choice is about picking what works for you and your goals.
Things to Consider Before Choosing
Take a moment and consider the following points before making your final choice:
What’s your investment horizon – are you in for the long ride or just looking to complete some financial goals soon? What’s your risk appetite – will you be comfortable with short-term losses? How are the current market conditions looking? Look into the fund manager’s previous records and how the fund is diversifying your portfolio. A well-balanced mix can help you ride market ups and downs with minimal issues.
Can You Invest in Both?
Having both value and growth funds in your mutual fund portfolio can help you get better returns. This approach offers you the high potential of growth funds in bull markets when value funds lag, and it also provides the stability of growth funds in bear markets, when growth funds can be unpredictable. This can prove to be your ideal approach if you are looking for exposure to mutual funds without relying heavily on a particular investment strategy.
Conclusion
Growth and value mutual funds are two different types of guests at a party. Growth funds are those that like to burst into the room with high energy and optimism, while value funds, like the Bandhan Sterling Value Fund, scan the room and leave an impression over time. Whether you prefer the flash or the fundamentals, the key to choosing your ideal fund is picking the one that makes your investment portfolio feel right at home.
