ICICI Pru Value Discovery Fund vs. Bandhan Sterling Value Fund: Which Adds More Value to Your Portfolio?

July 22, 2024 Mutual Fund

Investing in mutual funds has become a popular choice for individuals looking to grow their wealth over time. Among the various types of mutual funds, value funds stand out for their strategy of investing in undervalued stocks.

Value mutual funds in India have garnered significant attention as an attractive investment avenue in 2024. These funds follow a value investing strategy, aiming to identify and invest in stocks that are undervalued relative to their intrinsic value. By purchasing these undervalued stocks, value mutual funds seek to capitalise on price corrections as the market eventually recognises the true value of these companies.

In 2024, the Indian stock market has exhibited a mixed performance. While the market has seen periods of volatility due to global economic uncertainties and domestic macroeconomic challenges, it has also presented opportunities for discerning investors. Value mutual funds have particularly stood out in this environment due to their focus on fundamentally strong companies available at discounted prices.

According to historical data, Value mutual funds have demonstrated resilience during market downturns and often outperformed growth funds during economic recovery. Their focus on buying undervalued stocks provides a cushion against market volatility.

[Read: 3 Best Value Funds for 2024 – Top Performing Value Mutual Funds in India]

In 2024, Value Mutual Funds have shown a preference for sectors such as financial services, energy, industrials, and healthcare, where valuations are attractive and growth prospects are solid. Investor sentiment towards value investing has improved as many previously overvalued growth stocks have corrected, making value stocks more appealing. The focus has shifted towards companies with strong balance sheets, sustainable earnings, and reasonable valuations.

Why One May Consider Investing in Value Mutual Funds?

• Value investing involves buying stocks that are trading below their intrinsic value. These undervalued stocks have the potential for significant price appreciation once the market recognises their true worth.
• Value investing provides a margin of safety. By purchasing stocks at a discount, investors have a buffer against market downturns. This margin of safety reduces the downside risk, making value investing a relatively safer strategy compared to growth investing, which often involves buying high-priced stocks with uncertain future growth.
• Value investing emphasises the importance of strong fundamentals. Investors look for companies with sound financial health, competent management, and sustainable business models. This focus on fundamentals ensures that the investments are in companies with a solid foundation, reducing the likelihood of significant losses.

Investors may consider value investing as part of their overall investment strategy, particularly if they have a long-term horizon and are comfortable with a contrarian approach.

In this article, we will compare two prominent value funds in India: the ICICI Prudential Value Discovery Fund and the Bandhan Sterling Value Fund. Both funds aim to provide long-term capital appreciation by investing in fundamentally strong companies available at a discount. We will delve into their performance, investment strategies, risk factors, and other key aspects to help investors make an informed decision.

# – Bandhan Sterling Value Fund

Bandhan Sterling Value Fund is an open-ended equity scheme that belongs to Bandhan Mutual Fund. The scheme aims to to generate capital appreciation from a diversified portfolio of equity and equity-related instruments by following a value investment strategy. The Bandhan Sterling Value Fund was formerly known as the IDFC Sterling Value Fund.

# – ICICI Pru Value Discovery Fund

ICICI Pru Value Discovery Fund is an open-ended equity scheme and belongs to ICICI Mutual Fund. Launched in August 2004, ICICI Pru Value Discovery Fund currently holds an AUM of Rs 45,470.95 crore and is one of India’s most well-known value-oriented funds. This scheme aims to provide long-term capital appreciation and income distribution by investing predominantly in equity and equity-related securities.

Investment Style and Philosophy:

– Bandhan Sterling Value Fund: follows a value investment strategy. The fund manager seeks to identify companies trading at a discount to their intrinsic value and with the potential for significant appreciation. The focus is on companies with strong growth prospects, healthy financials, and competent management. The fund maintains a balanced approach by investing in large-cap, mid-cap, and small-cap stocks.

– ICICI Pru Value Discovery Fund: follows a value investment strategy, focusing on identifying stocks that are undervalued relative to their intrinsic value. The investment team looks for companies with strong fundamentals, including sound financials, competent management, and a sustainable business model. The fund manager aims to buy these stocks at a discount and hold them until their market price reflects their true value.

Both ICICI Prudential Value Discovery Fund and Bandhan Sterling Value Fund follow a value investment strategy. However, there are subtle differences in their approaches.

The ICICI Prudential Value Discovery Fund tends to have a more conservative approach, focusing on established companies with a proven track record. On the other hand, Bandhan Sterling Value Fund may take a slightly more aggressive stance by investing in mid-cap and small-cap stocks with higher growth potential.

• Performance Comparison: Rolling Returns

  Scheme Name	Absolute (%)	CAGR (%)
  	1 Year	3 Years	5 Years	7 Years	10 Years
  ICICI Pru Value Discovery Fund(G)-Direct Plan	33.73	28.22	21.22	17.10	20.16
  Bandhan Sterling Value Fund(G)-Direct Plan	34.31	31.73	21.02	18.31	19.99
  Value Fund – Category Average	49.43	23.30	22.57	16.22	16.78
  Benchmark – Nifty 500 – TRI	27.13	20.65	16.70	15.29	15.71

  Data as of July 18, 2024
  Do note past performance is not an indicator of future returns
  The securities quoted are for illustration only and are not recommendatory.
  (Source: ACE MF, data collated by PersonalFN Research)  

  As we can see from the above table, both funds performed well over the past year, with the Bandhan Sterling Value Fund slightly outperforming the ICICI Prudential Value Discovery Fund. However, both funds underperformed compared to the category average for value funds but outperformed the benchmark.

  Here, Bandhan Sterling Value Fund has taken the lead by offering higher returns in the past three years compared to its peer and benchmark returns. However, over the five-year period, both funds exhibit very similar performance, with the ICICI Pru Value Discovery Fund at 21.22% and the Bandhan Sterling Value Fund at 21.02%, both significantly outperforming the category average and the Nifty 500 benchmark.

  This suggests that while ICICI Pru Value Discovery Fund has been slightly more consistent over the very long term, Bandhan Sterling Value Fund has exhibited stronger performance in the mid to long term. Overall, the Bandhan Sterling Value Fund's slightly superior performance over three and seven years indicates a strong mid-term growth potential, while the ICICI Pru Value Discovery Fund's consistent performance over ten years underscores its stability and reliability for long-term investors.

  Do note that past performance should not be the only element, it's important to note that one may consider other factors like portfolio holdings, risk profile, and investment philosophy before making a decision.

• Portfolio Composition: Asset Allocation of Schemes

  Both Bandhan Sterling Value Fund and ICICI Pru Value Discovery Fund are popular choices for investments in infrastructure sector-oriented funds, but their asset allocation strategies differ slightly.

  Scheme Name	Large Cap %	Mid Cap %	Small Cap %
  ICICI Pru Value Discovery Fund	68.15	7.82	5.12
  Bandhan Sterling Value Fund	62.50	15.03	17.58

  Data as of July 18, 2024
  Do note past performance is not an indicator of future returns
  The securities quoted are for illustration only and are not recommendatory.
  (Source: ACE MF, data collated by PersonalFN Research)  

  Both ICICI Pru Value Discovery Fund and Bandhan Sterling Value Fund focus on value investing strategy, but their approach to diversification within that sector differs.

  The ICICI Prudential Value Discovery Fund allocates a substantial 68.15% of its portfolio to large-cap stocks, emphasising stability and lower volatility. This significant allocation to well-established, financially robust companies aims to provide a steady foundation for long-term capital appreciation.

  The fund's exposure to mid-cap (7.82%) and small-cap (5.12%) stocks is relatively modest, reflecting a conservative approach. This strategy seeks to balance the potential for higher returns from smaller companies with the stability and reliability of large-cap investments, making it suitable for investors with a moderate risk appetite looking for steady growth.

  In contrast, the Bandhan Sterling Value Fund exhibits a more aggressive asset allocation strategy, with a considerable 62.50% in large-cap stocks, which is slightly less than the ICICI Pru Value Discovery Fund. This fund significantly increases its exposure to mid-cap (15.03%) and small-cap (17.58%) stocks. This higher allocation to smaller companies reflects a focus on capturing growth opportunities in potentially undervalued sectors. While this strategy can lead to higher returns, it also introduces greater volatility and risk.

  If you are looking for a more stable investment, then ICICI Pru Value Discovery Fund may be a better option due to its higher allocation to large-cap stocks. However, if you are willing to take on more risk in order to achieve higher potential returns, then Bandhan Sterling Value Fund may be a better option.

• Market Volatility: Risk profile of Schemes

  Investing in sectoral funds may offer benefits from the growth potential of the underlying sector, such as infrastructure; however, understanding the scheme's risk-reward profiles is crucial before investing.

  Risk Ratio	ICICI Pru Value Discovery Fund	Bandhan Sterling Value Fund
  Standard Deviation (3 Year)	12.25	14.55
  Sharpe	0.50	0.42
  Sortino	1.09	0.81

  Data as of July 18, 2024
  Do note past performance is not an indicator of future returns
  The securities quoted are for illustration only and are not recommendatory.
  (Source: ACE MF, data collated by PersonalFN Research)  

  When comparing the risk-reward profiles of the ICICI Pru Value Discovery Fund and the Bandhan Sterling Value Fund, several key metrics provide valuable insights. An investment with high volatility is considered riskier than an investment with low volatility; the higher the Standard Deviation, the higher the risk.

  The Standard Deviation, a measure of volatility, indicates that the Bandhan Sterling Value Fund has a higher standard deviation (14.55) compared to the ICICI Pru Value Discovery Fund (12.25). This suggests that the Bandhan Sterling Value Fund experiences greater fluctuations in its returns, implying higher risk. Investors in this fund should be prepared for more pronounced price swings, which can be both advantageous during market upswings and challenging during downturns.

  The Sharpe and Sortino ratios further elucidate the risk-adjusted returns of these funds. The ICICI Pru Value Discovery Fund boasts a higher Sharpe Ratio (0.50) than the Bandhan Sterling Value Fund (0.42), indicating that it delivers better returns per unit of total risk taken.

  The Sortino Ratio, which only considers downside risk, also favours the ICICI Pru Value Discovery Fund (1.09) over the Bandhan Sterling Value Fund (0.81). This implies that the ICICI Pru Value Discovery Fund is more efficient in managing downside risk while delivering superior risk-adjusted returns.

  Remember, this comparison is just to give you an idea about the risk profile of the two best Value mutual funds. Consider your risk tolerance and investment goals to determine which fund aligns better with your investment strategy.

• Top Holdings of the Schemes:

  While both Bandhan Sterling Value Fund and ICICI Pru Value Discovery Fund invest in undervalued stocks following the value investing style, their specific holdings and sector allocation reveal some key differences:

  Bandhan Sterling Value Fund		ICICI Pru Value Discovery Fund
  Company	% Assets	Company	% Assets
  HDFC Bank Ltd.	5.18	HDFC Bank Ltd.	8.68
  Axis Bank Ltd.	4.54	Infosys Ltd.	7.24
  Reliance Industries Ltd.	4.49	ICICI Bank Ltd.	6.76
  ICICI Bank Ltd.	3.69	Reliance Industries Ltd.	6.14
  Jindal Steel & Power Ltd.	2.68	Sun Pharmaceutical Industries Ltd.	5.50
  CG Power and Industrial Solutions Ltd.	2.53	Bharti Airtel Ltd.	3.42
  Hero MotoCorp Ltd.	2.29	NTPC Ltd.	3.42
  NTPC Ltd.	2.13	Hindustan Unilever Ltd.	3.12
  IndusInd Bank Ltd.	2.10	ITC Ltd.	2.94
  Bosch Ltd.	2.10	Oil & Natural Gas Corporation Ltd.	2.45

  Data as of July 18, 2024
  Do note past performance is not an indicator of future returns
  The securities quoted are for illustration only and are not recommendatory.
  (Source: ACE MF, data collated by PersonalFN Research)  

  Both the Bandhan Sterling Value Fund and the ICICI Pru Value Discovery Fund focus on investing across the market cap and other sectors. While both funds have significant exposure to HDFC Bank Ltd., their top holdings and sector allocations show slight variations.

  The Bandhan Sterling Value Fund has a diversified portfolio with significant allocations to leading companies across various sectors. The top holding is HDFC Bank Ltd. at 5.18%, indicating a strong preference for stable, well-established financial institutions. Other prominent financial stocks include Axis Bank Ltd. (4.54%) and ICICI Bank Ltd. (3.69%), highlighting the fund's confidence in the financial services sector.

  In addition to financials, the fund has substantial investments in Reliance Industries Ltd. (4.49%), a diversified conglomerate with interests in energy, petrochemicals, and retail. The inclusion of Jindal Steel & Power Ltd. (2.68%) and CG Power and Industrial Solutions Ltd. (2.53%) underscores a focus on industrials and manufacturing, which can provide growth through infrastructure development and industrial production. Hero MotoCorp Ltd. (2.29%) and Bosch Ltd. (2.10%) represent the fund's stake in the automobile and ancillary sectors, aiming to capitalise on the automotive industry's growth potential.

  On the other hand, ICICI Prudential Value Discovery Fund also demonstrates a well-balanced approach but with a stronger emphasis on a few high-conviction bets. After HDFC, the fund's second-largest holding is Infosys Ltd. (7.24%), reflecting confidence in the technology sector, particularly in the IT services domain.

  Additionally, the fund's exposure to Reliance Industries Ltd. (6.14%) aligns with the diversified nature of the energy and petrochemical giant. Sun Pharmaceutical Industries Ltd. (5.50%) and Bharti Airtel Ltd. (3.42%) illustrate the fund's strategic allocation to healthcare and telecommunications, sectors known for their defensive qualities and growth potential. The inclusion of NTPC Ltd. (3.42%) and Oil & Natural Gas Corporation Ltd. (2.45%) highlights the fund's investments in energy and utilities, which are essential for economic stability and growth.

  Sector-wise, the ICICI Prudential Value Discovery Fund shows a more concentrated approach with significant stakes in technology (Infosys Ltd.) and pharmaceuticals (Sun Pharmaceutical Industries Ltd.), which are sectors expected to benefit from global demand and innovation.

  Whereas, Bandhan Sterling Value Fund demonstrates a broader sectoral spread, with notable investments in industrials (Jindal Steel & Power Ltd. and CG Power) and consumer-focused stocks (Hero MotoCorp Ltd. and Bosch Ltd.), reflecting a diversified strategy aimed at capturing growth across various segments of the economy.

• Expense Ratio of the Schemes

  When comparing value funds, the Expense Ratio, which represents the annual fee charged, plays a crucial role in determining your returns. Here's a quick breakdown of Bandhan Sterling Value Fund vs ICICI Pru Value Discovery Fund:

  Scheme Name	Direct Plan Expense Ratio	Regular Plan Expense Ratio
  Bandhan Sterling Value Fund	0.68%	1.75%
  ICICI Pru Value Discovery Fund	1.01%	1.56%

  Data as of July 18, 2024
  Do note past performance is not an indicator of future returns
  The securities quoted are for illustration only and are not recommendatory.
  (Source: ACE MF, data collated by PersonalFN Research)  

  As you can see, Bandhan Sterling Value Fund has a significantly lower expense ratio for a direct plan. This indicates that, for direct plan investors, the Bandhan Sterling Value Fund offers a more cost-efficient option with a significantly lower Expense Ratio compared to the ICICI Prudential Value Discovery Fund. Even a small percentage point difference can accumulate over time and impact your returns.

  However, for regular plan investors, the scenario is slightly different. The ICICI Prudential Value Discovery Fund's expense ratio of 1.56% is lower than the Bandhan Sterling Value Fund's 1.75%. This makes the ICICI fund a more attractive option for those investing through regular plans, as the lower expense ratio could result in better net returns.

  Remember that lower expense ratios should not be the only factor to be considered when choosing which value fund to invest in.

• Suitability of Investors to the Schemes:

  Bandhan Sterling Value Fund is suitable for investors with a higher risk appetite and a long-term investment horizon. The fund's investment philosophy focuses on identifying fundamentally strong companies trading at a discount to their intrinsic value. This approach could potentially lead to higher returns over the long term, but it also comes with the risk of short-term volatility. Investors who believe in the power of value investing and are comfortable with market fluctuations may find this fund appealing.

  ICICI Pru Value Discovery Fund could be suitable for investors seeking a blend of value and growth opportunities. The fund aims to invest in companies with strong fundamentals and growth prospects that are currently undervalued. This approach can offer a balance between capital appreciation and income generation. Investors with a moderate risk appetite and a medium to long-term investment horizon may consider this fund.

  Bandhan Sterling Value Fund and ICICI Pru Value Discovery Fund are value-oriented equity funds that aim to invest in undervalued stocks. However, their specific investment philosophies, portfolio compositions, and performance track records may differ.

To summarise…

The ICICI Prudential Value Discovery Fund and the Bandhan Sterling Value Fund are both excellent choices for investors seeking long-term capital appreciation through value investing. Each fund has unique strengths and characteristics, making them suitable for different investors.

The ICICI Prudential Value Discovery Fund, with its conservative approach, lower expense ratio, and experienced management, is ideal for investors looking for stability and consistent returns. On the other hand, the Bandhan Sterling Value Fund, focusing on mid-cap and small-cap stocks, offers higher growth potential but comes with increased risk, making it suitable for investors with a higher risk tolerance.

Ultimately, the choice between these two funds should be based on an individual’s investment horizon, risk tolerance, financial goals, and overall portfolio diversification. By carefully considering these factors, investors can make an informed decision and choose the fund that best aligns with their investment objectives.

Disclaimer: PersonalFN does not receive any monetary compensation from the fund house or scheme names stated in the article.

This article first appeared on PersonalFN here