Tata Mutual Fund has launched Tata Value Fund Series 2, a close ended fund which will invest in ‘value stocks.’ This comes closely on the heels of the launch of Tata Value Fund Series 1 which closed for subscription on 6th July.
Value investment is not formally defined but generally means finding undiscovered stocks that are valued lower by the market than what their fundamentals justify. The fund will have a tenure of 1,103 days or slightly more than three years.
Sonam Udasi will be the fund manager. He manages a number of other Tata schemes such as Tata Digital India Fund, Tata Banking and Financial Services Fund, Tata Pharma and Healthcare Fund. Udasi also manages Tata PE Fund, an open-ended fund which follows a value investing strategy based on the Price-to-Earnings (PE) ratio.
This fund has outperformed its benchmark, the Nifty 50, over the past three, five and 10 years with returns of 16%, 25.5% and 16.7% CAGR respectively. However, this performance looks rosier than it is because the fund also has mid and small cap exposure which its benchmark index does not. That said, other funds managed by Udasi such as Tata Digital India (where he was in charge until June 2018) have also done well with a 48% return over the past year.
The NFO opened for subscription on 13th July and will close on 27th July 2018. The fund will invest 80-100% of its assets in equities and the rest in debt. It will have the S&P BSE 200 (Total Returns Index) as its benchmark.
Close-ended funds pair nicely with a value investing strategy. Value investing needs investors to patiently wait for out-of-favour stocks to be recognised by the market (buy-and-hold). It often takes exposure to relatively illiquid and less traded companies. Thus it may not work well if there are large inflows and outflows in the fund.
On the other hand, a tenure of three years may be too short for this type of strategy to really work. Even if investors are willing to wait for longer, the mandate of the fund will force redemptions at the end of its tenure. The scheme can be extended at the discretion of the AMC and subject to SEBI rules, but there is no guarantee of this.
NFO Period: 13th July – 27th July 2018
Minimum Investment: Rs 5,000
Benchmark: S&P BSE 200 (TRI)
Options: Growth and Dividend Payout
Fund Manager: Sonam Udasi