Contra Funds: A Divergent way of investing…!!
Investing always needs a proper strategy. Market sentiment does play a key role in deciding strategy related to the investment. There are different types of funds for different types of investor. Some investors are quite aggressive, so they invest in equity funds, whereas some investors want to protect their capital and invest in debt funds. People are aware about different types of funds, equity funds, debt funds or liquid funds for traditional investors. But there is also a totally different kind of fund which is quite opposite to traditional mode of investing. One such fund is Contra Fund.
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 in the near future. 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.
Best Contra Funds to Invest…!!
Before investing in any Contra Fund, an investor should look upon various factors. Here’s a list of best contra fund to invest according to economic times:
- Invesco India Contra Fund
- Kotak India EQ Contra Fund
- SBI Contra Fund Growth.
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.
*Mutual fund investments are subject to market risks. Please read the scheme information and other related documents carefully before investing.