Value Fund vs Growth Fund: Two Different Investing Styles

Both value and growth funds are equity schemes, and both are ultimately trying to do the same thing: buy stocks that will be worth more in the future than the price paid today. Where they diverge sharply is in how they identify which stocks qualify. That difference in philosophy shapes everything downstream — the sectors a fund gravitates toward, how its returns behave across market cycles, and even how volatile its NAV tends to be relative to peers.

Value Investing: Buying What the Market Has Mispriced

A value fund manager looks for stocks trading below what they believe is the company's intrinsic worth. The typical toolkit leans on valuation ratios — price-to-earnings, price-to-book, dividend yield — assessed against a stock's own history, its industry peers, or the broader market. The underlying belief is that markets are not perfectly efficient: sentiment, short-term earnings disappointments, or simple neglect can push a fundamentally sound business to trade at a discount, and that discount tends to narrow over time as other investors eventually notice.

Value portfolios often end up concentrated in sectors that are cyclical, capital-intensive, or currently out of investor favor — think financials, industrials, or commodity-linked businesses during periods when technology or consumer-discretionary themes are dominating headlines. This is not a flaw in the strategy; it is simply where statistically cheap stocks tend to cluster at any given time. A value fund can go through long stretches of underperformance relative to the broader market if the “cheap for a reason” stocks it holds stay cheap longer than expected, or if the market itself is in a phase that rewards expensive, high-growth names instead.

Growth Investing: Paying Up for Momentum and Expansion

A growth fund takes the opposite approach. Instead of screening for cheapness, the manager looks for companies with above-average, and often accelerating, revenue and earnings growth — and is willing to pay a higher valuation multiple to own that growth. The underlying belief here is that a business compounding earnings quickly enough will keep justifying, or even growing into, a premium valuation, so the entry price matters less than the trajectory of the underlying business.

Growth portfolios tend to skew toward sectors where rapid expansion is more structurally possible — technology, newer-economy businesses, consumer brands scaling fast, and companies riding a strong secular trend. Because growth stocks are already priced for optimism, they can be considerably more sensitive to any disappointment: a single quarter of slowing growth, or a shift in interest-rate expectations that makes future earnings less valuable in present terms, can trigger sharper drawdowns than in a typical value stock.

Why the Two Styles Behave Differently Across Market Cycles

Because value and growth are built on opposite premises, they tend to take turns leading and lagging depending on the macro backdrop. Value strategies have historically tended to hold up better, in relative terms, during periods of rising interest rates or economic uncertainty, since cheaper stocks already price in less optimism and therefore have less room to fall on disappointment. Growth strategies have tended to do better when rates are low or falling and investors are willing to pay up for future earnings, since that environment makes distant profits more valuable today. Neither pattern is a rule that holds in every cycle, but it explains why the two styles rarely peak or trough at the same time.

The SEBI Rule: A Fund Must Stick to Its Declared Style

Under SEBI's scheme categorization framework, value and growth are among the distinct sub-categories an AMC can register an equity scheme under, and a fund that declares itself a value fund is required to maintain a value-oriented investment style in practice, not just in its marketing name. This exists precisely because a manager could otherwise quietly rotate a “value fund” into expensive momentum names during a growth-led rally to chase short-term performance, leaving investors holding something entirely different from what the label promised. The categorization rule is meant to keep a fund's actual portfolio honest to the style investors signed up for, so that the name on the factsheet remains a reliable description of how the money is actually being managed.

This is also why, in practice, relatively few AMCs run a pure “growth fund” as a distinct SEBI category compared to how often the word “growth” appears elsewhere on a factsheet — most schemes instead offer a “Growth” option (as opposed to a Dividend/IDCW option) for how returns are paid out, which is a completely separate concept from the growth investing style described above. It is worth not confusing the two when reading a scheme name.

What This Means When You Look at Actual Holdings

Because the style label is supposed to constrain the portfolio, the most reliable way to judge whether a fund is genuinely following its declared style is to look at what it actually holds — the sector mix, the individual stocks, and how concentrated or diversified those bets are — rather than relying on the category name alone. Two funds both labeled “value” can still differ meaningfully in which sectors they lean into and how much overlap they have with each other. Readers who want to see this directly can compare fund styles on the screener to line up value and growth schemes side by side and see their sector weights and top holdings rather than just the label on the fund name.

This article explains how value and growth as investing styles differ and how SEBI's categorization rules apply to them; it is educational in nature and is not a recommendation to invest in any specific fund, sector, or style. Both approaches carry their own risks, and which one is more suitable depends on an individual's own goals, time horizon, and risk appetite.