Value investing may be as old as time itself. However, this ‘proven’ approach to investing often slips out of the spotlight when newer trends grab attention. Like now perhaps, when investors are gripped with the idea of momentum.
Having said that, the adage “old is gold” fits value investing perfectly. It has passed the test of time, surviving market cycles and still gives results even when the market shifts and the new fads appear.
The Warren Buffett playbook: Why price matters
At its core, value investing focuses on identifying stocks that are undervalued in relation to their intrinsic worth. The key premise is that markets frequently misprice securities in the short term, creating opportunities to invest in companies trading below their true value. This strategy was pioneered by Benjamin Graham and David Dodd in the early 1930s at Columbia University’s Business School, laying the foundation for many successful investment philosophies that followed. Of course, Graham’s most successful student, Warren Buffett, has over the years proven that the idea of value investing is evergreen.
Warren Buffett and the margin of safety
Warren Buffett, has consistently emphasised the concept of the “margin of safety”, a principle borrowed from his mentor, Benjamin Graham. The idea is simple: invest in stocks that are priced significantly below their intrinsic value, providing a cushion against potential errors in judgment or unforeseen market fluctuations.
Value fund: Standing the test of time
While the old-school approach of value investing may seem outdated to some, it has proven to be a strategy to rely on, especially when market valuations are stretched, and volatility looms. This brings us to the crux of the matter: how value investing continues to shine in the modern era, particularly through value-themed funds like the Motilal Oswal BSE Enhanced Value Index Fund. Despite the rise of varied investment strategies, this fund has delivered impressive returns, outperforming even the best-performing large-cap, mid-cap, and small-cap mutual funds.
The report card: Value strategy vs. Small cap darlings
To illustrate this, we compared the Motilal Oswal BSE Enhanced Value Index Fund with the top-performing funds in the large-cap, mid-cap, and small-cap categories based on three-year returns. The results speak for themselves:
| Fund Name | 3-Month Gain % | 6-Month Gain % | 1-Yr Gain % | 2-Yr CAGR % | 3-Yr CAGR % |
| Motilal Oswal BSE Enhanced Value Index Fund Direct | 11.12 | 10.72 | 10.73 | 23.64 | 31.13 |
| Bandhan Small Cap Fund Direct | 2.13 | 3.47 | -0.42% | 24.63 | 30.86 |
| Invesco India Mid Cap Fund Direct | 3.75 | 10.26 | 10.79 | 27.92 | 27.89 |
| ICICI Prudential Large Cap Fund Direct | 5.33 | 7.57 | 8.45 | 17.29 | 17.99 |
Note: The trailing returns for Motilal Oswal BSE Enhanced Value Index Fund are as of December 1, while the others are as of December 3.
As the table clearly indicates, the Motilal Oswal BSE Enhanced Value Index Fund Direct has outperformed the Bandhan Small Cap Fund (small-cap category), Invesco India Mid Cap Fund (mid-cap category), and ICICI Prudential Large Cap Fund (large-cap category) over the past three years.
Wealth creation: Turning ₹5 Lakh into ₹11 Lakh
Let’s take a closer look at the impact on an investor’s returns. Suppose an investor had made a lump-sum investment of Rs 5 lakh in the Motilal Oswal BSE Enhanced Value Index Fund Direct three years ago. As of today, that investment would have grown to Rs 11.27 lakh, delivering an absolute return of 125.46%. This means the investment more than doubled in just three years.
In comparison, the same Rs 5 lakh invested in the average category fund would have grown to Rs 7.88 lakh. The difference in returns is striking, with the value index fund significantly outperforming its peers.
A closer look at the Motilal Oswal BSE Enhanced Value Index Fund
The Motilal Oswal BSE Enhanced Value Index Fund is an open-ended scheme that replicates the BSE Enhanced Value Total Return Index. The fund’s objective is to provide returns that closely correspond to the total returns of the securities represented by the index, before expenses and subject to tracking error. Its top three holdings include Indian Oil Corporation, State Bank of India, and Hindalco Industries.
Conclusion
Value investing may not always be the flashiest strategy, but it remains one of the most reliable and time-tested approaches. As evidenced by the performance of the Motilal Oswal BSE Enhanced Value Index Fund, value investing continues to offer robust returns, even when compared to more aggressive small cap and mid cap mutual funds.
Disclaimer: The article is for informational purposes only and not investment advice.
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