Value Funds See Increased Inflows Amid Market Correction Opportunities

In a notable shift, value funds in India have attracted substantial new investments, with inflows soaring from ₹24.4 crore in August to ₹1,290.89 crore in September, according to data from the Association of Mutual Funds in India (Amfi). This increased interest coincides with a prolonged market correction that has highlighted opportunities to acquire fundamentally strong businesses at attractive prices.

Value funds focus on companies that are financially sound but currently trading below their intrinsic worth, providing a margin of safety for investors. This strategy has gained attention as the market’s uneven valuation trends have encouraged investors to look beyond the high-flying growth stocks, which appear expensive by comparison.

Unmesh Kulkarni, managing director and group product head at The Wealth Company, explains that the rise in value fund inflows is driven by investors’ desire to find stocks whose prices do not fully reflect their potential, especially when growth stocks are trading at elevated levels. Additionally, Rajan Sarkar, director and unit head at Anand Rathi Wealth, notes that value funds have historically performed well during market downturns or periods of subdued returns, making them appealing for reducing portfolio volatility.

September’s jump in inflows was further supported by a new fund offer from the Bank of India Value Fund, which alone gathered ₹361 crore, representing nearly 28 percent of the total category inflows that month. Despite this enthusiasm, experts caution that the trend should not be interpreted as a complete shift away from growth investing, but rather as a complement to a diversified portfolio.

Examining market valuations reveals why value funds look attractive now. On October 12, 2026, the Nifty 500 Value 50 traded at about 9.7 times earnings, considerably lower than the 21.8 times earnings ratio of the broader Nifty 500 index. Its price-to-book ratio was approximately 1.23, compared to around 3.1 for the wider index. According to Sarkar, these valuation levels offer a potential entry point for investors to benefit from a future market recovery.

However, investors should remain cautious of value traps—stocks that appear cheap but are undervalued for valid reasons such as deteriorating business conditions or weak competitiveness. Kulkarni highlights that low valuation multiples can sometimes signal uncertainty about a company’s sustainable earnings or capital needs. Even well-managed firms can remain undervalued for extended periods until certain triggers prompt a re-evaluation.

Returns from value funds tend to follow a cyclical pattern, with periods of strong gains often followed by stretches of lackluster or negative performance. Markets that favor momentum, visible earnings growth, or structural growth advantages can cause value strategies to lag over long durations. Additionally, economic slowdowns or adverse commodity cycles can adversely impact sectors commonly found in value portfolios.

Value funds generally suit investors with a long-term horizon who can remain invested through market cycles. Abhishek Kumar, an investment adviser registered with the Securities and Exchange Board of India (Sebi), recommends a commitment period of at least five to seven years to allow undervalued equities to realize their potential across economic phases.

Both active and passive value fund options are currently available. Active funds rely on professional managers to identify corporate turnarounds and avoid value traps, while passive funds track factor indices, offering a lower-cost and transparent approach for investors focused on expenses.

For portfolio diversification, value funds might make up about 10 to 20 percent of an equity allocation, with investors encouraged to build exposure gradually through systematic investment plans (SIPs) to reduce market timing risks. Kumar emphasizes that SIPs can help smooth entry points during volatile periods.

When selecting value funds, past performance should not be the sole consideration. Nitin Agrawal, CEO of Mutual Funds at InCred Money, advises investors to look for a consistent and repeatable investment process proven across different market cycles. Evaluating portfolio concentration, turnover, and risk management practices is important, along with comparing valuation metrics like average price-to-earnings and price-to-book ratios against benchmarks. Kumar also recommends ensuring fund managers adhere strictly to a value investment mandate without drifting into other styles.

Existing investors in value funds are encouraged to maintain their SIPs and, if feasible, increase contributions during market dips to benefit from rupee-cost averaging. Agrawal notes that volatility often lowers the average acquisition cost of portfolios. Periodic rebalancing is advisable when allocations deviate significantly from strategic targets, though temporary underperformance or normal cyclical challenges do not justify exiting a value fund.

This shift in investor interest toward value funds reflects broader trends in the equity market where valuation discipline regains focus amid changing economic conditions. As the market environment evolves, careful stock selection and patience remain key for investors aiming to capitalize on undervalued opportunities within a diversified portfolio.