Contra Mutual Funds

Investing does not always revolve around following the market trends. Some of the most profitable investments are made in situations where most investors perceive risk. The Contra Funds capitalise on such an approach to investment. The Contra Funds use contrarian investing, which involves focusing on undervalued sectors and stocks.

What are Contra Funds?

Contra Funds are a type of equity mutual funds that use a contrarian investment strategy. The fund manager picks up stocks, sectors, or industries that might be performing poorly in the market, yet are expected to bounce back and provide good returns on investment.

These mutual funds make investments in undervalued quality shares and earn from their appreciation when the markets turn favorable. Due to such contrarian approaches to investing, they take time.

Features of Contra Funds

• Contrarian Investment Approach: The strategy involves investing in unpopular or undervalued stocks/sectors in the stock market.
• Wealth Creation Over Time: The investment decisions are based on future growth prospects, which may not be perceived by many investors.
• Managed Portfolio: Professional managers do thorough research and make investment choices based on market opportunities.
• Diversified Approach: Investment portfolio comprises various companies/sectors to minimise risk.
• Opportunity to Earn High Returns: By entering investments at attractive valuations, Contra Funds may generate significant returns when market conditions improve.

How to Invest in Contra Funds?

You can invest in contra funds by following simple process:

Step 1: Choose investment mode. You can invest through:

• AMC websites
• Online investment platforms provided by stockbrokers
• Mutual fund distributors

Step 2: Choose a suitable contra fund.

Step 3: Choose between Systematic Investment Plan (SIP) and Lump sum based on your goal and make investment.

Step 4: Make payment through UPI, netbanking or other available methods.

Why Invest in Contra Funds?

• Opportunity to Buy Undervalued Assets: Contra Funds seek investment opportunities in stocks that may be temporarily mispriced by the market.
• Benefit from Market Corrections: These funds can capitalize on sectors or companies that are overlooked during periods of negative sentiment.
• Alternative Investment Approach: Contra Funds offer an alternative approach to the traditional one used by growth funds or momentum funds.
• High Capital Appreciation: With changing market sentiments, the undervalued shares may appreciate in capital terms in the long run.

Taxation Rules for Contra Funds

In India, contra funds are taxed similarly to equity mutual funds.

• Short Term Capital Gains (STCG): If you sell your units within one year, the gains will be considered short-term capital gains (STCG). These will be taxed at a flat rate of 20% plus applicable surcharge and a 4% health and education cess. It is worth noting that there is no basic exemption limit available for short-term capital gains.
• Long Term Capital Gains (LTCG): The gains will be classified as LTCG if you have sold mutual funds units for more than 12 months. These will be taxed at a flat rate of 12.5% without indexation benefit.