How to Choose a Value Mutual Fund (India Edition)

In this article, I present a structured approach to evaluating value mutual funds in the any market, using the above criteria.

The Selection Philosophy – 

35 Value Mutual Funds in India

As of now, there are approximately 35 value mutual funds in India. From this universe, I have shortlisted just two funds based on three key factors.

The three factors:

1. Longevity: Both funds were launched in 2013 and have thus weathered over a decade of market volatility.
2. Ratings: One fund holds a 5-star Morningstar rating, and the other holds 4 stars.
3. AUM: One fund manages ₹53,750 crore (approx. $6.48 billion), while the other manages ₹8,584 crore (approx. $1.03 billion). Larger AUMs often attract more attention and resources from the Asset Management Company (AMC), which can be advantageous for investors.

   Selected Funds

   • ICICI Prudential Value Fund – Direct Plan
   • Nippon India Value Fund – Direct Plan

   Note: I have chosen Direct Plans over Regular Plans due to various benefits. A detailed comparison between the two plans will be covered in a future post

Key Risk Ratios

σ             Standard Deviation (SD)     Measures fund’s volatility

S&So      Sharpe & Sortino Ratios      Sharpe (S) – How much risk is converted into return.

                                                           Sortino (So) – How much downside risk is converted into return.

α             Alpha                                   Measures excess returns over benchmark

β             Beta                                     Assesses volatility relative to the benchmark.

Performance Metrics

• – ICICI Prudential exhibits lower volatility (SD) and delivers higher alpha, indicating superior excess returns.
• – Nippon India shows a slightly higher Information Ratio, suggesting more consistent alpha generation.
• – However, Nippon’s Beta of 1 and high R-squared imply it closely mirrors the benchmark. For an actively managed fund, this raises concerns—if the fund behaves like an index, one might prefer a passive index fund with lower costs

ICICI has expense ratio of 0.99% as compared to 1.09% of Nippon India’s expense ratio, making it a little expensive

Fund Manager Profiles

• ICICI Prudential is led by Mr. Sankaran Naren, a veteran with over 21 years at ICICI and 14 years as Chief Investment Officer. His deep experience and disciplined value strategy have contributed to the fund’s strong alpha performance. While value investing can underperform in bull markets and is susceptible to value traps, Mr. Naren’s execution track record inspires confidence.
• Nippon India is managed by Meenakshi Dawar (7.4 years), Dhrumil Shah (2.7 years), and recently joined by Divya Dutt Sharma and Lokesh Maru. While the team is competent—especially Dawar, who has 15 years of portfolio experience—the frequent changes in leadership may raise questions about consistency. The Nippon India fund follows a balanced approach, Large cap industry leaders and Undervalued stocks. This strategy suggests a tilt toward large-cap exposure, especially given its Beta of 1, which indicates close alignment with the benchmark.