What are Contra Funds?
Contra Funds are Equity Mutual Funds that use a contrarian investment strategy. They focus on acquiring stocks currently undervalued or out of favour in the market. Fund managers use a strategic approach, seeking opportunities in companies with strong fundamentals.
These mutual funds are highly suitable if you are looking for long-term growth through strategic stock selection. The goal is to buy low and hold the funds until their value is recognised, potentially yielding significant returns when market sentiment shifts.
Features of a Contra Fund
- Contrarian strategy: Invests in undervalued stocks, aiming to profit when market sentiment shifts for the better.
- Long-term focus: Typically holds investments for an extended period, allowing time for the market to recognise actual value.
- Active management: Managed by professionals who conduct thorough research and analysis to identify potential opportunities.
- Disciplined approach: These funds maintain a disciplined approach by avoiding herd mentality and focus on long-term fundamentals rather than short-term trends.
How do Contra Funds work?
Fund managers conduct in-depth research to identify companies with strong fundamentals but are facing negative market sentiments. Contra Funds aim to capitalise on potential price recoveries by purchasing these stocks at lower prices. The strategy involves holding these investments for the long term, allowing time for the market to recognise their actual value.
Benefits of investing in a Contra Mutual Fund
- High return potential: Invests in undervalued stocks, offering significant upside when market sentiment shifts.
- Diversification: Provides exposure to various sectors and companies, reducing overall portfolio risk.
- Long-term growth: Focuses on companies with strong fundamentals, making it suitable for long-term investors.
- Professional management: Managed by experienced fund managers who conduct thorough research and analysis.
How to invest in a Contra Mutual Fund?
1. Manage financial goals: Determine your investment objectives, such as capital appreciation, wealth creation, and risk tolerance.
2. Look out for available funds: Compare various funds based on performance history, expense ratios, fund house pedigree etc.
3. Choose your investment method: Decide whether to invest via a lump sum or an SIP.
4. Complete KYC requirements: Ensure you have the necessary KYC documents ready for verification.
5 .Make your investment: Select the preferred fund, specify the investment amount, and initiate the transaction.
Taxation rules of Contra Mutual Funds
- Short-term capital gains (STCG): Gains from units sold within 12 months are taxed at 20% p.a.
- Long-term capital gains (LTCG): Gains over ₹1.25 lakh are taxed 12.5% p.a. for units held over 12 months.
- Dividend taxation: Dividends are taxed as per your applicable income tax slab.
Also Read: Does NAV matter in Mutual Funds?
FAQs
What are Contra Mutual Funds?
Contra Mutual Funds invest in undervalued or unnoticed stocks to capitalise on potential price recoveries.
What does a Contra Fund invest in?
Contra Mutual Fund invests in companies with strong fundamentals but low market demand, allowing fund managers to buy at lower prices.
What is the investment time horizon for a Contra Mutual Fund?
The ideal time for a Contra Mutual Fund is typically 5 years or more to reach its actual value.
Is SIP or lumpsum better for Contra Fund investments?
SIPs allow for regular investments, reducing market timing risks, while lumpsum can yield higher returns if invested during favourable market conditions.
How much money do you need to start investing in Contra Funds?
For investing in Contra Mutual Funds, you might only need ₹100 per month to start an SIP. (It depends on the fund's requirements.)
Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.
Mutual Fund investments are subject to market risk, read all scheme related documents carefully. Axis Bank Ltd is acting as an AMFI registered MF Distributor (ARN code: ARN-0019). Purchase of Mutual Funds by Axis Bank’s customer is purely voluntary and not linked to availment of any other facility from the Bank. T&C apply.
