Introduction to Contra Mutual funds
Are you smart enough to know the difference between a good and a bad fund? Well, sorry to burst your bubble there is no such thing as good or bad when it comes to Mutual Funds.
Yes, each fund and mutual fund category has its pros and cons which are dependent on the investor’s goals. You need the right strategy and discipline to build a great future wealth.
Amongst these wide options, you can filter one category that works best for you. Likewise, the Contra Mutual Funds are a top choice for every investor seeking high returns. These stocks are suitable for investors with long-term patience.
A pro tip: Make sure your investment goals align with the mutual fund scheme that you choose.
In this article, you will delve into finding if these contra funds work in favor of your investment goals or not. Let’s find out.
Let’s start with the most basic questions that will let you understand its meaning.
What are Contra Mutual Funds?
The Contra Funds are a popular category investing in companies currently showing underperformance. These companies often have a strong market presence and are very famous in their field. Moreover, it works on a contrarian style of investing that involves finding the hidden gems of the market. It turns them into profitable investments.
The fund managers go against this statement by thinking they are undervalued and that they will perform well and give capital gains. Additionally, this strategy aims to benefit from temporary market differences. Plus, the stock prices are below their real value due to market overreaction.
Now that you know its meaning, let us learn the advantages as well.
Benefits associated with Investing in Contra Mutual Funds High Return Potential
The contra funds results will bring good returns as the undervalued stocks rise in value:
- Reduced Downside Risk: Contra funds focus on companies with strong fundamentals that are priced low. They may impose less risk against falling equity markets.
- Access to Low-Priced Assets: These funds offer investors equity exposure to stable firms. These companies are in phases that are considered unattractive and can purchase the shares cheaply.
- Expert Management: These are professional managers select good companies with good quality. Thus a professional evaluation and selection of stocks.
- Long-Term Growth:Contra funds are meant for long-term investors willing to make money. You can make profits after a turnaround and growth of value stocks.
- Portfolio Diversification: Contra funds invested money across different companies and industries. It makes the overall risk seem somewhat smaller while keeping a specific goal in mind.
Best Contra Mutual Funds for SIP in India
Here are the top contra mutual funds with which you can start your SIP:
Invesco India Contra Fund
- Investment Goals:It seeks to generate capital appreciation through means of contrarian investing. The fund aims to identify potentially undervalued stocks across sectors. It utilizes both top-down and bottom-up approaches to pick stocks for a while before they find favor with the rest of the market.
- Launch Date:04.2007
- AUM:17,813 Crores (as of 30.08.24)
- CAGR:41%
SBI Contra Fund
- Investment Goals:The scheme aims to invest in undervalued stocks. These stocks have the potential to show attractive growth in the long term.
- Launch Date: 07.1999
- AUM: 39,384 Crores (as of 30.08.24)
- CAGR: 94%
Kotak India EQ Contra Fund
- Investment Goals: It aims to make capital from a diversified portfolio of equity and equity-related instruments. It will invest in stocks of companies that are fundamentally strong and undervalued.
- Launch Date: 07.2005
- AUM:3,982 Crores (as of 30.08.24)
- CAGR:5%
Next, you will learn about the various risks connected to this category.
What are the Risks of Investing in Contra Mutual Funds?
Here are a few considerations related to risk that you need to know:
- Market Volatility:Contra funds invest in stocks that are out of favor. Therefore, receive nicknames such as aggressive or speculative equity funds.
- Extended Recovery Times:The process of coming up with ideal information on undervalued stocks. This may sometimes take time, and this calls for investors to be patient.
- Higher Expenses:The contra funds are cheaper in management fees than most other investments. Some contra funds have a lower effect on the net funds and could result in low returns by the fund.
- Risk of Underperformance: Due to market trends, the fund’s selected stocks can fail to perform. This could mean that investors are subjected to a few poor returns duration.
Lastly, you will identify if this category will generate high returns or not.
Are Contra Mutual Funds Suitable for You?
Contra mutual funds are ideal for:
- Long-Term Investors: It involves investors who are willing to keep their investments for 5 years. Moreover, those who can accommodate market volatility risks.
- Risk-Tolerant Investors:People who are ready to take more risk for a better profit. Investors who know that the market fluctuations are normal.
- Value-Focused Investors:Those interested in investing in companies with long-term growth potential. If you are amongst one of these, will find it suitable.
Final Words
In short, if you are someone looking to make high returns on hidden assets, it is your best option. Make sure you follow via SIP route to reduce the risk in their portfolios. Meanwhile, do not forget to invest for the long term. This simple strategy will increase your chances of making high returns. A systematic investment plan gives you compounded returns over time.
