Contra Fund or Value Fund – Gulaq States
The fund managers of mutual funds adopt various investing styles to achieve the objective of the investment scheme. Regarding these, the contrarian style of investing might interest many investors; whilst, the risks are high, thus, this style of investing offers the investor(s) an opportunity to earn ‘superlative returns’. In here, let’s explore more about Contra Fund or Value Fund. Here:
A Contra Fund is considered as against the wind kind of investment style. The funds invest in the under-performing or depressed shares at that point in time. This is basically an equity fund, which takes a contrarian view of the market. The fund manager of these funds picks the underperforming stocks and sector which may perform well in the long run. The general belief among these fund managers is that herd mentality of the investor has led to mispricing of assets, which will pick up steam in the long run as well as create opportunities for investors to generate greater returns soon. The fund manager keeps a strong watch on the market to identify those under performing stocks which have great potential to grow in the future. The underlying ideology behind investing in contra funds is that, once the immediate concerns are mitigated, the asset will go back to the real value.
Who Should invest in these Funds?
Contra Funds are an excellent opportunity for those investors who want diversification as well as good returns in the long term. Financial advisor always suggests their investor to invest a small portion (10- 15 %) of their funds into these funds. But an investor should always remember that these funds may not perform in the short term, but they can be a better performer after a period of five years to 10 years. Unlike any other equity funds, an investor cannot base their investment decision on the returns given by these contra funds. The investor must look at the mandate of the fund and the themes before investing. It’s also good to invest in those funds for long term, especially for tax benefits. In case, if any investor sells these contra funds within less than a year, the tax rate will be 15%. But in case, if the investor holds it for a long period of time, the gains will be long term and mainly tax free if the returns are less than Rs. 1 Lac.
But before investing in these funds, an investor must have a sound knowledge of macro trends and prefer to take selective bets for better returns compared to other equity funds. At the same time, an investor should also expect for the possibility of moderate to high losses despite market performing well.
Factors to Consider
- The possibility of losses is there
- The performance of market is irrelevant
- Always research the fund manager
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*Disclaimer: investment in securities market are subject to market risks, read all the related documents carefully before investing