A contra fund is a type of mutual fund that follows a contrarian investment strategy. The goal of a contra fund is to invest in stocks or other securities that are currently out of favour or undervalued by the market, with the expectation that they will rebound in the future.
Here’s how a contra fund typically works:
- Contrarian Approach: The fund manager of a contra fund looks for opportunities in stocks or other securities that are not in favour among investors. This may include companies that have experienced recent declines in stock price, have negative sentiment in the market, or are in industries that are out of favour.
- Active Management: Contra funds are actively managed, which means that the fund manager actively selects and manages the portfolio of securities. The manager makes decisions based on their analysis of market trends, valuations, and other factors, with the goal of identifying investments that are expected to perform well in the future.
- Diversification: Contra funds typically invest in a diversified portfolio of securities to spread out the risk. This may include stocks of companies across different sectors, industries, or regions, or other types of securities such as bonds or derivatives.
- Long-Term Focus: Contra funds typically have a long-term investment horizon, as the fund manager expects the undervalued securities to eventually recover and provide a return to the investors. This means that contra funds are not meant for short-term trading or quick returns, but rather for patient, long-term investors.
- Risk Factors: Contra funds carry risks similar to other types of mutual funds, including market risk, liquidity risk, and credit risk. The value of the fund’s investments may go down as well as up, and there is no guarantee of returns.
- Expenses: Like other mutual funds, contra funds charge fees and expenses to cover the costs of managing the fund. These fees may include management fees, administrative fees, and other charges, which can affect the overall performance of the fund.
- Investment Objective: The primary objective of a contra fund is to generate capital appreciation by investing in securities that are undervalued or out of favour. However, the specific investment objective, risk tolerance, and other factors may vary depending on the fund’s prospectus and investment strategy.
It’s important to carefully review the prospectus and consult with a qualified financial professional before investing in a contra fund or any other mutual fund to understand the risks, fees, and investment strategy involved.
Few popular contra mutual funds example in India:
- SBI Contra Fund: Managed by SBI Mutual Fund, this is a popular contra mutual fund in India that aims to invest in undervalued stocks that have the potential to generate higher returns in the long run. The fund focuses on contrarian investment strategies and takes positions in sectors or companies that are out of favour or have fallen out of favour in the market.
- HDFC Capital Builder Value Fund: Managed by HDFC Mutual Fund, this is another example of a contra mutual fund in India that aims to invest in undervalued stocks with the potential for long-term growth. The fund follows a value-oriented investment approach, focusing on companies that are trading at a discount to their intrinsic value and have the potential for future growth.
- ICICI Prudential Value Discovery Fund: Managed by ICICI Prudential Mutual Fund, this is a popular contra mutual fund in India that follows a value-oriented investment strategy. The fund aims to identify undervalued stocks across different sectors that have the potential for long-term appreciation, and takes contrarian positions based on the fund manager’s assessment of market conditions.
- Franklin India Equity Fund: Managed by Franklin Templeton Mutual Fund, this is another example of a contra mutual fund in India that follows a contrarian investment strategy. The fund aims to invest in stocks that are undervalued and have the potential for future appreciation. The fund manager takes a bottom-up approach to stock picking, focusing on individual stock characteristics rather than following the broader market trends.
- IDFC Sterling Value Fund: Managed by IDFC Mutual Fund, this is a value-oriented contra mutual fund in India that focuses on identifying undervalued stocks with the potential for long-term growth. The fund manager follows a contrarian approach, looking for opportunities in sectors or companies that are out of favour in the market but have the potential for turnaround.
Please note that mutual fund performance can be subject to market risks and past performance is not indicative of future returns. It’s important to carefully review the fund’s investment objective, strategy, risks, and historical performance before making any investment decisions. It’s also recommended to consult with a qualified financial advisor for personalized investment advice.
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