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How are value funds different from multicap funds?

Dhirendra Kumar tells how value funds are different from multicap funds


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How are value funds different from multicap funds? Where should I invest for five to seven years?
-Kamal

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Sometimes, they could be similar but they are not same. Value funds are mutual fund schemes which are trying to spot companies which are out of favour and available at a discount. The fund manager thinks that these stocks are worth much more than the price they are available at.

Broadly speaking, all stocks can be either value based or growth based. Value stocks are what I just explained. Growth stocks are where investors are willing to pay a premium because the company is growing much faster. Because a company is growing faster, it will earn more money and because of that people are willing to pay a higher price to achieve that higher growth. So, multicap funds can be a combination of value as well as growth and it will necessarily be invested in all sizes of companies. So, multicap is a perfect representation of all sizes of companies in your portfolio - large, mid and small. Value funds are not designed to be multicap at all times.

For five to seven years, use a combination of both value and multicap funds. Value funds require greater patience. We don't have pure value funds. Sometimes there are, but very few. Most funds try to do well consistently over time and have followed a very lenient definition of value. I would say have a combination of both but multicap should be your main stream.

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