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Contra Mutual Funds : Should Individual Investors Invest In Contra Funds?

Contra is a short form of contrarian, in finance contrarian investors are those who works against the prevailing market trends. In other words, it is a strategy where investor buys shares of stock when most others are selling and sells when others are buying. This is a risky investment strategy which contrarian investors take in the hope of making huge profits.

Contra Mutual Funds is a type of Equity Mutual Funds which are not favored by most of the stock investors but has potential to grow in future. Contrarian is an investment strategy where fund managers keep a close eye on the market to identify those underperforming stocks which has growth potential in long run. Although this investment strategy make investors owe a portfolio at bargain price but it requires a lot of research and analysis to make correct estimation of the intrinsic growth and potential of the stock in advance.

contra mutual funds

For example : Looking at the current position of kingfisher airlines you may not like to invest in it. Considering it to be bad place to lock your money, most of you like to sell the shares. But contrarian investors would pick this stock for investment as due to current market position the value of these shares are low. Contrarian investor invest in this stock with the hope to earn huge profit in future. Here contrarian investor has taken a big risk and expects the condition of kingfisher airlines will improve and worth of its shares will increase.

In other words, contrarian investing is picking stocks which are likely to perform well in long run but currently out of favour with the majority of investors. Contrarian investors estimates its intrinsic growth potential in advance and invest when other investors are not favoring to invest in it.

What All Fund Houses Offers Contra Mutual Funds In India?

We can see contra funds from all major fund houses in India like, Tata, UTI, SBI, ING Vysya, Kotak, Religare, L&T etc.

Can Individual Investors Invest In Contra Mutual Funds?

Individuals who have high risk capacity can invest in contrarian funds but otherwise individual investors can make investment in these funds using the services of fund managers. Being a risky investment it can offer you great returns so you can either research yourself or get the benefit of the knowledge and research of your fund managers to invest in potential stock. But you should invest only 10 to15% of your portfolio in these funds.

Returns On Contra Mutual Funds

In recent past, contra funds have generated between 8 to 13% returns on investment.

Tax On Contra Mutual Funds

  • 15% flat tax on short term capital gain
  • No tax on long term capital gain
  • A STT (securities transaction tax) of 0.1% is levied on all, while investing as well as on redemption.

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About the Author: Praveen Unnikrishnan

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