When it comes to investing, most investors prefer growth stocks. Whether it’s the latest technology company, a fast-expanding startup, or a sector expected to double in the next few years, investors often chase returns. In this growth-centric environment, investing in value index funds is often ignored by investors.
But ignoring value index funds is a big mistake in this volatile financial market, as they provide a balance between growth and safety, making value index funds one of the most underrated investment options available in the Indian stock market. In this blog, we will explore the reasons behind the undervaluation of value index funds.
What Are Value Index Funds?
Value index funds are passive funds that invest in undervalued stocks. These are stocks trading at lower valuations relative to their fundamentals, such as earnings, dividends, or book value. Instead of chasing high growth, these funds seek stocks that are priced reasonably but are financially strong.
Value index funds allow investors to buy stocks that are temporarily overlooked in the stock market but have strong fundamentals, with potential for attractive gains when the market realizes their true potential.
These funds’ selection criteria include a Low price-to-earnings (P/E) ratio, a low price-to-book (P/B) ratio, and often higher dividend yields.
Why Value Index Funds Are Underrated
There are several reasons behind the underrated status of value index funds. Some of these are:
Overemphasis on Growth and Momentum
Over the past decade, growth funds have dominated the stock market. Sectors like technology, fintech, and digital platforms have captured investors’ attention, leading to a strong preference for growth funds. This bias has overshadowed value investing, making value index funds appear old-fashioned to investors, even though they continue to deliver stable returns.
Not Quick Returns
Many investors find value index funds unexciting because they rarely generate sudden, multibagger returns. Instead, they offer stability and gradual compounding, which may feel boring compared to the aggressive growth of growth funds. But this consistent growth often leads to long-term wealth creation for investors.
Underperformance During Bull Markets
Value index funds often underperform in bull markets, which are usually dominated by growth funds. They also underperformed during market downturns or economic recoveries, which shakes investors’ confidence in value index funds, and they start looking for better options.
However, historical data show that value index funds often bounce back, outperforming growth funds when markets stabilize.
Limited Awareness and Education
Compared to growth-oriented strategies, value index funds receive relatively less attention in financial education and media coverage. Many investors remain unaware of the different index fund categories available to them, such as Nifty 50 Value 20 index funds or Nifty 500 Value 50 index funds, which specifically track undervalued stocks.
Investors may overlook value funds or misunderstand their role in a diversified portfolio if they are not properly guided and educated about value index funds.
Structural Constraints of Indexing
Value index funds replicate the index, which restricts their ability to respond quickly to shifts in stock prices and market inefficiencies.
When some stocks go downwards, index funds still maintain their exposure, which reduces the short-term returns. This structural rigidity makes value index funds an underrated option for investors.
Final Thoughts
Value index funds often don’t get the attention they deserve. While growth funds may grab headlines with quick returns, value funds quietly deliver resilience, stability, and reliable compounding, which every portfolio needs.
By blending value index funds with growth funds, investors can strike the right balance between excitement and safety. Ultimately, value index funds may not create overnight wealth, but they act as the steady anchor in an investor’s portfolio.