The Indian equity markets have had several stocks that would under-perform at the start and then contribute significantly to investor wealth as their prices rise. Most experienced equity investors swear by many under-performing stocks that may currently look unattractive but hold immense potential to rise in value. So, how do new investors identify such stocks?
This is when contra funds come into the picture. These funds aim to deliver capital growth through investment in such stocks. Read on to find out more about this interesting investment concept and how it works.
Contra funds are equity mutual funds that primarily invest in equities. These funds adopt a contrarian view of the market. To put it simply, Contra fund managers place their bets against the prevailing market movements. They invest in undervalued stocks that are fundamentally sound, stocks that are not preferred by the market. These stocks often come at lower prices and therefore contra funds can benefit from sharp rises in the prices of these stocks if and when the market takes note of them.
As per SEBI norms, contra funds are required to invest a minimum of 65% of total assets in equity and equity linked instruments.
Contra Funds invest in stocks that the market generally does not recognize. It aims to see a price-value increase of these investments when markets recover. Contra funds are based on the idea that lower or no stock demand may lead to market mis-pricing. Investors often adopt a herd mentality of investing in trendy stocks, which could be overpriced. Contra Fund managers foresee a price fall of such stocks and then, once their value is realized by the market, they capitalize these by earning high returns from the once poorly performing stocks.
Here are some of the top for investors to consider investing in contra funds:
Some risks of investing in contra funds are:
Contra funds belong to the equity mutual funds category. Therefore, the income from contra funds is taxed like any equity fund. Here are some important points on applicable tax:
Investors who want to explore undervalued stocks that are often overlooked by the market can invest in contra funds. Generally, following type of investors prefer these funds:
Here’s a look at some of the top-performing contra funds:
Inception Date | Jan 01, 2013 |
Benchmark Name | S&P BSE 500 Total Return Index |
Fund Manager | Dinesh Balanchandran |
Expense Ratio | 1.62% |
Historical Returns of the Fund (annualised)
1-Year | 2-Year | 3-Year | 5-Year | Since Inception |
100.15% | 23.73% | 14.86% | 14.64% | 13.82% |
Inception Date | January 01, 2013 |
Benchmark Name | NIFTY 100 Total Return Index |
Fund Manager | Shibani Kurian |
Expense Ratio | 1.04% |
Historical Returns of the Fund (annualised)
1-Year | 2-Year | 3-Year | 5-Year | Since Inception |
66.27% | 18.34% | 15.27% | 17.78% | 15.90% |
Inception Date | January 01, 2013 |
Benchmark Name | S&P BSE 500 Total Return Index |
Fund Manager | Taher Badshah |
Expense Ratio | 0.56% |
Historical Returns of the Fund (annualised)
1-Year | 2-Year | 3-Year | 5-Year | Since Inception |
61.47% | 19.12% | 14.44% | 18.48% | 18.95% |
While investing in contra funds, investors need to carefully study the fund’s aim and the themes used for investment. It is important to be in agreement with the fund manager’s investment perspective to make the most of contra funds.
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