NRIs Guide: Investing in Value Mutual Funds in India

Are you looking to invest in India's equity markets but want more stability than traditional growth funds offer? Value funds focus on identifying fundamentally strong Indian companies trading below their intrinsic worth, offering NRIs the potential for stable, long-term growth and built-in downside protection through disciplined stock selection.

India’s position as one of the fastest-growing major economies makes it an attractive investment destination for NRIs. Mutual funds have become a popular investment choice due to their cost-effectiveness and diversification benefits. NRIs from countries like the UAE, Singapore, and the UK particularly favor mutual fund investments to participate in India’s economic growth.

This article explains why value funds align with NRI investment objectives, how they differ from growth funds, and the tax benefits they offer for your long-term financial planning.

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What Are Value Funds?

Value funds are equity mutual funds that invest in stocks trading below their true worth. These funds focus on companies with strong fundamentals whose stock prices do not reflect their intrinsic value. Value fund managers analyze financial statements, business models, competitive positioning, and management quality to identify stocks trading below their calculated intrinsic value.

Value funds seek out companies that are temporarily undervalued due to various reasons, including negative public perception, short-term market inefficiencies, or being overlooked by mainstream investors. The fund manager’s objective is to identify these undervalued opportunities and hold them until the market recognizes their true worth.

Value funds typically have these characteristics:

• They invest in stocks with lower price-to-earnings ratios, book value, or cash flow compared to market averages
• They often include well-established companies with proven business models
• Many value stocks pay regular dividends, providing income alongside potential appreciation

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Why Value Funds Align With NRI Investment Goals

Value funds offer specific advantages that address the unique challenges NRIs face when investing in Indian markets. As India progresses toward becoming a USD 5 trillion economy, participating in this growth story becomes increasingly attractive.

Managing individual stock investments from thousands of miles away presents practical difficulties. Value funds solve this challenge through professional fund management, where experts continuously monitor market conditions and make investment decisions on your behalf.

Key advantages for NRIs include:

• Professional Management: Fund managers handle portfolio decisions and market monitoring
• Online Accessibility: Complete investment management through digital platforms
• Diversification: Reduced risk through portfolio spread across multiple companies
• Liquidity: Easy redemption compared to direct equity investments

Value funds serve NRIs planning eventual return to India by building a financial foundation for their transition. Unlike fixed deposits that offer stability with minimal returns, value funds provide both growth potential and relative stability through diversification.

Value funds represent a balanced approach between high-risk equity investments and low-return fixed deposits, making them suitable for NRIs seeking both growth and stability in their Indian investment portfolio.

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How are Value Funds Taxed?

Value funds, being equity-oriented mutual funds (with ≥65% in equities), are taxed as equity funds. For NRIs, short-term capital gains (if sold within 12 months) are taxed at 15%, with 15% TDS deducted at source. Long-term capital gains (held over 12 months) are taxed at 10% on gains exceeding ₹1 lakh per financial year, with 10% TDS. Dividends, if opted, are added to income and taxed at the applicable slab rate, and TDS at 20% applies on dividend payouts exceeding ₹5,000 annually.

For NRIs, value funds offer long-term wealth creation potential with favorable equity taxation. Since they invest in fundamentally strong but undervalued companies, they provide a relatively lower-risk entry into Indian equities, making them a suitable option for NRIs seeking growth with tax efficiency.

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Benefits for NRIs Investing in Value Funds

Leverage these advantages to strengthen your NRI investment strategy:

• Margin of Safety through Undervaluation
  Value funds focus on stocks trading below their intrinsic worth, offering NRIs a cushion against downside risk if the market corrects.
• Lower Volatility and Drawdown
  By investing in established companies with stable cash flows, value funds typically exhibit smaller swings during market downturns compared to growth funds.
• Attractive Long-Term Returns
  Historically, value strategies have outperformed over multi-year horizons, as undervalued stocks often revert toward fair value.
• Diversification Across Sectors
  Value funds typically hold a diversified basket of value-oriented stocks (e.g., financials, consumer staples), reducing concentration risk.
• Systematic Investment Plan (SIP) Discipline
  SIPs in value funds enable NRIs to average into the market over time—mitigating the impact of rupee-currency fluctuations and market-timing risks.

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Conclusion

Value funds provide NRIs with a balanced investment option for participating in India’s economic growth. These funds offer stability during market volatility while maintaining long-term appreciation potential, unlike growth funds that perform primarily during bull markets.

You should consider value funds if you have a long-term investment horizon. These funds help you participate in India’s growth while building a financial foundation for future plans, whether returning to India or diversifying your global investments.

It is essential to consult a financial advisor familiar with cross-border taxation and investment regulations before making investment decisions. Proper planning and strategic allocation can help you achieve your financial goals while maintaining investment connections to India’s economy.

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Frequently Asked Question

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Q1. What makes value funds attractive for NRI investors?
Value funds offer stability during market volatility while capturing long-term growth potential. They align well with NRI investment goals by providing professional management, online accessibility, and potential currency benefits.

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Q2. What is the ideal investment duration for value funds?
Value funds are best suited for long-term investments, typically 5 years or more, to allow undervalued stocks to realize their growth potential.

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‍Q3. Can NRIs invest in value funds using NRE or NRO accounts?
Yes, NRIs can invest in value mutual funds via both NRE and NRO accounts, depending on the repatriability preference and fund house policies.

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Q4. Do value funds perform better during market volatility?
Often yes. Since they invest in fundamentally sound companies at a discount, value funds tend to be more resilient during downturns.

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