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Matter of Style Box

Value Research Fund Style Box depicts a fund’s investment style

What are your criteria when you decide whether a fund is growth or value? I have seen a few funds that say they are value funds, but in theValue Research Fund Style Box they are shown as growth.
-Hemant Beniwal

The Value Research Fund Style Box depicts a fund’s investment style, whether growth or value, based on its actual portfolio. This is also revised every month. So, it is possible that a fund has a stated objective of being a value offering, but has actually invested in growth stocks. In this case, the style box of that particular fund will show growth. It is also possible that the definition of growth and value by different mutual funds may differ from ours. Here’s how we define growth and value.

The stocks are first classified into large-, mid- and small-cap by arranging all listed stocks on the Bombay Stock Exchange in the descending order of market capitalisation. Then Weighted PE Score is computed by multiplying PE Ratio of each stock by percentage of market cap. Then the percentile Rank of the Weighted PE Score within the market cap group is computed to arrive at the final PE score. Similarly, the PB score is computed. Then the valuation score of the stock is computed by adding the two i.e. PE and PB score.

Within each market cap group, the median of the valuation scores of all the stocks is computed. Then, the stocks which have a valuation score greater than 15 per cent of the median are assigned as Growth stocks, whose valuation score lies below 15 per cent of the median are assigned as Value stocks and the rest as Blend.

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