The Mutual Fund Show: What Is Terminal Value Investing?

Terminal value refers to the estimated value of an asset or business beyond the forecasted period and in the future.

The high growth phase in India lasts for decades, according to Mihir Vora, chief investment officer of Trust Mutual Fund. "Quality is the foremost stock filter."

As stocks with long-growth runways are not easy to find, Vora suggests to "buy into sectors that are expected to grow". According to him, "Of the portfolio, 50% investment should be in large caps."

In terms of Trust MF's Flexi-Cap Fund, Vora said, "The runway of growth will go for 10-12 years, and we will not compromise on short-term returns."

The growth rate that is assumed at the 10th year is terminal, he said. And the value of the profit that come after the 11th, 12th, 13th and the 50th year is the terminal value for the company, explained Vora.

Small-cap funds witnessed outflow in March for the first time since September 2021. The net outflow from such funds was Rs 94.17 crore, as compared with a month-on-month inflow of Rs 2,922.4 crore.

"(I am) not surprised with the outflow from the small-cap space," said Rushabh Desai, founder of Rupee With Rushabh Investment Services. "The small and mid-cap space has been quite high in the last year-and-a-half. I feel this is quite natural and healthy."

According to Desai, the Trust MF's Flexi-Cap Fund "is a blended strategy (growth + value). The fund is inclined towards growth, having 40-60 stocks."

"I don't recommend investing in the fund right away. Wait and watch for a minimum of 3-5 years," he said.

Many flexi-cap funds have shown more than 90% outperformance strike rate, and 10-year daily rolling returns since inception. Desai recommends investors to stick with existing flexi-cap funds.