Are you looking for a long-term investment strategy that balances risk and growth potential? That’s where value investment appeals as a great avenue for sustainable wealth building. It is a proven strategy, focussing on identifying undervalued stocks and holding them until they realize their actual worth.
In this blog, you will learn how value investing works. With the right approach, you can use this strategy to grow your wealth, particularly while investing in a diverse stock market.
Why Value Investing Works for Long-Term Wealth Creation?
Value investing is all about identifying opportunities. Investors need to find stocks that are trading below their intrinsic value before the market catches on.
Successful investors mostly go for value funds, a popular category of mutual funds, where the fund managers are responsible for identifying the stocks for allocating their assets.
With several high-growth sectors and established corporations in India, opportunities for value investing are ample.
Benefits of Value Investing
Now, have a look at the key benefits of value investing.
1. Steady Wealth Accumulation
Value investing involves buying and holding stocks or mutual funds for the long term. Naturally, this approach corresponds with your wealth-building goals in the long run. Simply stay invested in undervalued companies that are likely to deliver handsome returns over time. Thus, you get an opportunity to grow your wealth without worrying about timing the market.
In India, holding stocks over the longer horizon brings in certain tax benefits. Investors need to shell out a lower long-term capital gains tax that brings in greater returns.
2. Lower Volatility and Risk
Value stocks differ from high-growth stocks in terms of volatilely. Usually, they are backed by established businesses and have an impressive track record of stable earnings. During market downturns, this goes a long way in protecting your portfolio since such companies are better poised to withstand financial storms.
3. Opportunity for Compounding Returns
When you hold stocks over several years, you benefit from their compounding returns. As the company grows and reinvests its profits, the value of your investment keeps growing. Take the instance of blue chip companies in India. They have steadily increased in value over decades, with patient investors benefiting from the rewards with significant gains.
4. Dividend Income
In established sectors like IT, companies like Infosys offer dividends. Thus, investors can create an additional stream of revenue while they wait for the price of the stock to appreciate. Considering the steady flow of cash, dividend income is particularly rewarding for value-oriented portfolios.
5. Protection against Market Sentiment
When it comes to value investing, you focus more on the fundamentals of a company over market trends. Thus, you are less likely to be swayed by the volatilely of the stock market. Rather, you make your investment based on the actual worth and future potential of a company.
In volatile markets, this approach is particularly beneficial when prices fluctuate drastically due to news cycles or global events. Since you invest in value mutual funds, you can avoid making rash decisions based on market sentiment.
6. Potential to Beat Inflation
Over time, the real value of your savings can be eroded by inflation. However, in high-growth economies like India, value stocks often grow faster than the inflation rate. This provides investors with a natural hedge against inflation. Look out for value mutual funds in sectors like technology, energy, and consumer to counter the effect of inflation as you grow your wealth.
Conclusion
Value investing is a time-tested strategy to create wealth in the long term. As an investor, you can either create a SIP or make a lump sum investment in one of the top-value mutual funds. Use a lumpsum calculator to determine the estimated returns in the long run and plan for the future.
Thanks to capital appreciation, steady dividends, and the hedge against inflation value investing helps you create a well-balanced portfolio. So, incorporate value stocks and choose your mutual funds carefully to experience rewarding returns.
