Broadly speaking, growth and value are the two popular investment styles. Growth style investing entails making investments in fairly/fully valued stocks that are expected to do even better going forward. Conversely, value investing involves making investments in fundamentally strong companies that are trading at a discount to their fair value. These stocks are then held onto until the mis-pricing is corrected and they attain their fair value.

Value investing is often considered synonymous with long-term investing. This is because a value stock may take a while to unlock value and deliver its true potential. Also, value investing is regarded to be less risky vis-�-vis the growth style.

In the domestic mutual fund industry, while fund pursuing the growth style are common place, professed value funds continue to be a rare breed. ICICI [Get Quote] Prudential Discovery Fund is a professed value fund.

In this article we discuss the investment proposition offered by IPDF and find out how it fared vis-�-vis other value funds.

IPDF's investment proposition

Launched in August 2004, IPDF is an offering from ICICI Prudential Mutual Fund. A diversified equity fund, it pursues the value style of investing. The fund is mandated to invest between 80 per cent-100 per cent of assets in equities and equity-related instruments, and upto 20 per cent of assets in debt and money market instruments. IPDF scouts for value stocks from across market segments (i.e. large, mid, small cap) and sectors. In other words, the fund makes investments in an unrestricted manner.

How IPDF fares vis-�-vis its peers

	NAV (Rs)	1-Yr (%)	3-Yr (%)	Since Incep. (%)	Std. Dev. (%)	Sharpe Ratio (%)
DSP ML Equity (D)	43.55	36.1	38.0	28.1	8.46	0.20
Tata Equity P/E (G)	34.48	48.4	33.1	38.3	9.20	0.19
Templeton India Growth (D)	47.38	32.7	28.0	21.0	8.74	0.15
ICICI Prudential Discovery (G)	27.39	14.5	24.9	32.6	8.99	0.04
UTI Master Value (G)	34.87	29.5	19.9	25.4	9.13	0.07
S&P CNX Nifty		28.2	27.8

(Source: Credence Analytics. NAV data as on March 10, 2008.)

(Standard Deviation highlights the element of risk associated with the fund. Sharpe Ratio is a measure of the returns offered by the fund vis-�-vis those offered by a risk-free instrument)

The fund's performance on the NAV (net asset value) appreciation front is disappointing. Over the 3-Yr time frame, IPDF (24.9 per cent CAGR) lags all the funds in the peer group except for UTI Master Value (19.9 per cent CAGR). DSP ML Equity (38.0 per cent CAGR) surfaces as the top performer, followed by Tata Equity P/E (33.1 per cent CAGR). The fund has also been outperformed by its benchmark index (S&P CNX Nifty) over this time frame.

Volatility

Standard Deviation is a measure of the risk levels that a fund has exposed investors to. With a Standard Deviation of 8.99 per cent, IPDF delivers an average performance vis-�-vis peers. While DSP ML Equity (8.46 per cent) delivers the best performance, Tata Equity P/E (9.20 per cent) languishes on the lowest rung.

Risk-adjusted returns
Sharpe Ratio is a measure of the risk-adjusted returns delivered by a fund. IPDF (Sharpe Ratio 0.04 per cent) falters on this parameter and emerges as the worst performer in the peer group. Yet again, DSP ML Equity (0.20per cent) delivers a good performance and occupies the top position, followed closely by Tata Equity P/E (0.19 per cent).

The above graph bears testimony to IPDF's poor showing as compared to its benchmark index i.e. S&P CNX Nifty. Rs 100 invested in IPDF at inception (August 2004) would have grown to Rs 273.4. Had the same amount been invested in the S&P CNX Nifty, it would have appreciated to Rs 303.5.

In a nutshell�

IPDF's performance on both the risk and returns parameters vis-�-vis its peers leaves a lot to be desired. To further worsen matters, the fund has failed to match its benchmark index since is inception.

What should investors do?

Now the big question is, should investors consider investing in the fund? That would ideally depend on their risk appetite, investment objective and existing portfolio, among a host of other factors.

At Personalfn, we have always maintained that a 'one size fits all' approach doesn't work while investing. An investment avenue that is apt for one investor could be grossly unsuitable for another. Therefore, investors would do well to consult their investment advisors/financial planners to determine the suitability of IPDF in their portfolios.

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