Fund managers of mutual funds adopt different investing styles to achieve the investment objective of the scheme. Of these, the contrarian style of investing interests many investors. While the risks are high, this style of investing offers investors an opportunity to earn superlative returns. Here, we will explore Contra Mutual Funds, which follow the contrarian style of investing, and talk about some essential factors that you need to know about these funds.
List of Contra Mutual Funds
- SBI Contra Direct Plan Growth
- Invesco India Contra Fund Direct Growth
- Kotak India EQ Contra Fund Direct Growth
What are Contra Funds?
A Contra Mutual Fund invests against the existing market trends and purchases stocks that are not performing well currently. The fund manager takes a contrarian view of the stock when it is shunned by the investors and also when there is a superlative demand for the same. Over-performance and under-performance lead to a distorted asset value, which the fund manager tries to capitalize on. The core belief is that any exorbitant price of an asset will eventually normalize in the long term once the existing triggers are mitigated.
The fund manager of a Contra Mutual Fund purchases stocks at a value lower than its expected value in the long term. There can be times when certain sectors witness a slump due to the prevalent market conditions. A contra fund invests in stocks of companies from these sectors and holds on to them till the demand increases. It is important to note here that these funds tend to perform better over the long term and are not ideal for short-term investments.
Features of a Contra Mutual Fund
Contra mutual funds have the following main qualities that distinguish them:
Risk-Reward Ratio
Contra funds have a higher risk-reward ratio since they invest in companies that are seeking to reach their full potential. Fund managers meticulously evaluate these companies in order to select those with the best potential for growth.
Equity Investment
These funds must devote at least 65% of their assets to equity-linked products and equity derivatives. This allocation emphasizes the fund's emphasis on equity growth prospects.
How Does a Contra Mutual Fund Work?
When compared to other mutual fund schemes, a contra fund operates significantly differently. It employs a strategy that assumes the asset class in which the counter-fund invests will improve at some point in the future. Fund managers may be able to get a good deal on these inexpensive securities. These investments are made with a long time horizon in mind.
How Should You Invest in a Contra Mutual Fund?
- You can invest in these funds through Asset management companies or also via Groww.
- You can sign up on Groww’s application, complete KYC, and start investing.
Why Should You Invest in a Contra Mutual Fund?
Despite the risks, contra-mutual funds can provide a variety of benefits:
High Returns
When underperforming equities recover, prudent contrarian investing can deliver substantial rewards.
Long-Term Growth
Contra Mutual funds may be a sensible choice for long-term investors looking for value that may take time to emerge.
Diversification
Contra funds can help to diversify a portfolio, especially if the other assets in the portfolio are more traditional.
Taxation Rules of Contra Mutual Funds
Tax rules applicable to such mutual funds’ gains are as follows:
Long-Term Capital Gains -10% Without indexation (less than Rs. 1 lakh.)
Short Term Capital Gains -15%
FAQs
Q1. What is Contra fund meaning?
A contra fund is a form of mutual fund that invests in the opposite direction of the market. Contra funds invest in stocks that are now out of favour or undervalued, as opposed to popular and performing well stocks.
Q2. Who can invest in Contra funds?
These funds can be suitable if you have a reasonable risk tolerance and can invest for the long term.
Q3. Are contra funds risky?
Contra funds are thought to be high-risk investments. They invest in equities and underperforming industries that may have a promising future. Contrarian investing entails investing against market sentiment.
Q4. Are contra funds rewarding investments?
Contra funds are high-risk, high-reward investments that can produce better long-term returns.
Q5. Where are contra funds invested?
A Contra Mutual Fund invests against current market trends and purchases underperforming stocks.
Disclaimer - Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
FAQs
A Contra Mutual Fund invests against the existing market trends and purchases stocks that are not performing well currently. The fund manager takes a contrarian view of the stock when it is shunned by the investors and also when there is a superlative demand for the same.
What is a contra mutual fund example? ›
A fund that seeks to capitalise on a commodities slump by picking up stocks in companies belonging to the sector can be called a contra fund. ING Contra, L&T Contra, SBI Magnum Contra, Kotak Contra, Tata Contra, UTI Contra and Religare Contra are some of the examples of contra funds in the Indian market.
Is it good to invest in contra mutual funds? ›
Is Contra Fund Risk-Free? No, there is a high risk involved in investing in Contra Funds. However, if you can stay invested for long and choose the right fund, your earnings can be potentially high as well.
Is contrafund a good investment? ›
The fund is currently managed by Will Danoff who has been in charge of the fund since May of 2008. Obviously, what investors are looking for in these funds is strong performance relative to their peers. This fund carries a 5-year annualized total return of 17.27%, and is in the top third among its category peers.
Is the contrafund better than the S&P 500? ›
Key Morningstar Metrics for Fidelity Contrafund
The fund's roughly 13% annualized gain over the past decade beat the S&P 500 (the fund's broad-market prospectus benchmark) and ranked among the best-performing third of funds in either the large-blend or large-growth Morningstar Categories.
Why is it called Contrafund? ›
The fund's name stems from its original mandate in 1967: "the fund's mission was to take a contrarian view, investing in out-of-favor stocks or sectors." This strategy has changed since the 1990s to become a fund focused on growth investing in large companies, and the Contrafund's strong history of growth has led to ...
What stocks are in contra fund? ›
Top 10 Holdings (55.13% of Total Assets)
- META. Meta Platforms, Inc. 13.78%
- BRK.A. BRK.A 8.71%
- NVDA. NVIDIA Corporation 6.71%
- AMZN. Amazon.com, Inc. 6.53%
- MSFT. Microsoft Corporation 6.49%
- LLY. Eli Lilly and Company 3.23%
- AAPL. Apple Inc. 2.90%
- GOOGL. Alphabet Inc. 2.54%
Lack of Control: Mutual funds may not be suitable for investors who want complete control over their portfolios, as they do all the picking and investing work.
How are contra funds taxed? ›
Contra funds gains will be short term if held for less than 1 year and it will be long term if held for more than 1 year. In the case of short term capital gains on contra funds, they will be taxed at a concessional tax rate of 15% on the STCG.
What is the minimum investment in contra fund? ›
One substantial disadvantage drove the rating downgrade for this otherwise excellent fund, says Morningstar's analyst. Fidelity Contrafund FCNTX remains excellent, but its colossal asset base is a substantial disadvantage and warrants a Morningstar Analyst Rating downgrade to Silver from Gold.
Who runs the Contra Fund? ›
William Danoff is the single manager of the Fidelity Investments' flagship mutual fund Contrafund.
Does Contrafund pay dividends? ›
FCNTX has paid $0.51 per share in the past year, which gives a dividend yield of 2.53%. The last ex-dividend date was Feb 16, 2024.
Which contra fund is best? ›
Best Contra Funds to Invest in 2024
| Scheme Name | Min. Investment | 1Y Returns |
|---|
| Invesco India Contra Fund Direct - Growth Equity Contra Fund Invest | ₹1,000 | 51.18 % |
| Kotak India EQ Contra Fund Direct - Growth Equity Contra Fund Invest | ₹100 | 57.54 % |
| SBI Contra Fund Direct - Growth Equity Contra Fund Invest | ₹5,000 | 51.32 % |
No. 1 on the list is the ProFunds Semiconductor UltraSector Fund, which yielded 29.21% over the past decade. In second place is the Direxion Monthly NASDAQ-100 Bull 1.75X Fund, with 28.16%. And the bronze medal goes to the Rydex NASDAQ-100 2x Strategy Fund, which yielded 26.58%.
Who is the best fund manager at Fidelity? ›
Among diversified fund managers, Tom Allen is coming on strong at VIP Mid-Cap Stock; Matt Fruhan, who recently took over Large Cap Stock (FLCSX), has a career record that bodes well; Brian Hogan at Blue Chip Value (FBCVX), who is also the manager of the equity stake in Strategic Dividend Income (FSDIX), remains the ...
What are contra examples? ›
A major example of a contra account is an allowance for doubtful accounts. This contra asset reduces the balance of gross accounts receivable by an estimate of how many receivables will go uncollected. Notice on Amazon's balance sheet that the balance of accounts receivable is noted as being a net amount.
What is an example of a contra account? ›
The most common examples of contra-accounts are the following: Contra Asset: Accumulated Depreciation, Allowance for Doubtful Accounts. Contra Liability: Financing Fees, Original Issue Discount (OID) Contra Equity: Treasury Stock.
What type of fund is Contrafund? ›
FUND INFORMATION
Fidelity® Contrafund® is an opportunistic, diversified equity strategy with a large-cap growth bias. Philosophically, we believe stock prices follow companies' earnings, and those companies that can deliver durable multiyear earnings growth provide attractive investment opportunities.
What is the difference between a value fund and a contra fund? ›
Contra Funds may offer higher potential returns, especially if the assets they invest in rebound as expected. However, the funds are very susceptible to increased volatility and risk. Value funds, on the other hand, are comparatively more stable and have long-term growth potential.
