Value investing is about finding good companies whose stocks are trading below their actual worth. Instead of following market trends or chasing popular stocks, value investors focus on what a company is really worth and wait for the market to recognise its value.
So, what if you had invested a fixed amount every month in value funds for the past 10 years? Would your investment have paid off?
A 10-year SIP backtest helps us explore the answer. By looking at historical returns, we can understand how value funds have performed, why some funds have done better than others and how the timing of your investment can affect your returns.
What is Value Investing?
Value investing involves identifying companies whose shares may be priced below their estimated underlying worth. Fund managers following this approach may examine business fundamentals, valuations, earnings and financial strength before selecting stocks.
Value-oriented mutual funds generally invest in equities using this philosophy. However, individual schemes may use different stock-selection methods and hold different portfolios. Like any investment approach, value investing has its own challenges. Some stocks may take longer to deliver results, while others may not perform as expected.
What Does a 10 Year SIP Backtest Reveal?
Building wealth through investing doesn’t always require a large amount to start with. Take ICICI Prudential Value Fund, for example. Suppose you started a monthly SIP of ₹5,000 and continued investing for 10 years, assuming an annualised return of 13%.
Here’s what your investment could look like:
- Monthly SIP: ₹5,000
- Investment period: 10 years
- Total amount invested: ₹6 lakh
- Estimated final value: ₹11.7–₹11.8 lakh
- Estimated gains: Around ₹5.7–₹5.8 lakh
In other words, your ₹6 lakh investment could grow to nearly ₹12 lakh over a decade. This illustrates how regular investing and compounding can help your money grow over time.
But returns are only one part of the story. Before investing in a value fund, it helps to understand three things:
- Staying consistent matters: A monthly SIP helps you invest regularly without having to decide when the market is at its best. Over time, this can help build a disciplined investing habit.
- Value investing takes patience: Value funds invest in stocks that appear to be priced below their estimated worth. It can take time for the market to recognise that value, so returns may vary from one period to another.
- Every fund is different: Even within the value-fund category, fund managers may choose different stocks and follow different strategies. This is why it helps to understand a fund’s investment approach and look at its performance over different periods, rather than focusing on one return figure alone.
How Can You Estimate Your Future Investment Value?
A SIP helps you build wealth over time, but it is equally important to understand how your investments could support your future financial goals.
A SIP calculator can help you estimate how much your regular investments could grow over time. If you have already built a corpus and want to withdraw a fixed amount regularly, an SWP calculator can help you estimate your withdrawals and how long your investment might last.
Both tools can help you explore different scenarios and plan your finances more effectively.
Final Thoughts
A 10-year SIP backtest suggests that selected value funds could have accumulated substantial sums through regular investing. However, outcomes vary across schemes, and the evidence does not prove that value investing could outperform other strategies in the future.
Understanding valuation risks, comparing fund strategies and aligning investments with your financial goals can provide a balanced basis for deciding if value investing is the right choice for you.
