Want Monthly Passive Income?
Explore Asset Leasing by Grip

Contra Funds Vs Value Funds: What Is Better?

Read this blog to know the difference between contra funds and value funds. Understand how each fund operates.
January 8, 2021

Schedule a call based on your convenience. And get an expert to help you invest.

Top 5 Reasons To Try Our Powerful Investment App!

  • High Quality MFs
  • Top Notch Stock Advisory
  • Expert Financial Advisors
  • Alternative Investments
  • Low Minimum Investments

Contra funds and value funds can be viewed as the underdogs of the mutual fund category. Both contra funds and value funds follow a unique investment strategy that may or may not be ideal for every investor. 

This blog will compare contra funds and value funds to know which fund could be a better investment option.

What Is A Contra Fund?

A contra fund falls under the equity funds category. It primarily invests in underperforming stocks with the assumption that these stocks will be profitable and lucrative in the future. 

The stocks may be underperforming due to short term concerns or fluctuations in the market or investor ideology. But in general, these stocks may have strong leadership and business fundamentals. 

This contrarian style of investing is the reason for the name, “Contra fund”. However, the investment strategy does not involve picking random underperforming stocks. 

The fund manager analyzes the market to identify fundamentally strong companies with a solid future potential even though they are currently underperforming. 

Read more about contra funds in detail here 

What Is A Value Fund?

A value fund falls under the equity fund category as well. It follows a different approach to investing in equity. A value fund will invest in stocks that are currently undervalued. 

The underlying assumption is that these stocks have high intrinsic value and future potential that the market and indeed the investors have not realized yet. 

A value fund looks to leverage this with the belief that the stock price will increase once the market deficiencies correct themselves. This will allow value fund investors to gain lucrative returns over the long term.    

Read this blog to know more about value funds 

Comparing Contra Funds Vs Value Funds

 

Type

Contra Fund

Value Fund

Fund Type

Equity

Equity

Stocks Invested In

Underperforming

Undervalued

Investment Horizon

Long term

Long term

Risk Profile

High 

High

Average 3 Year Returns

4-11%

2-9%

Average 5 Year Returns

11-15%

6-14%

Available On Cube

Yes

No

Both contra funds and value funds are high-risk investments that require patience and a long term commitment of 5+ years.  

According to SEBI guidelines, a fund house can only offer a contra fund or a value fund but not both. Contra funds and Value funds are clubbed into one category by SEBI which includes 18 scheme options.

Conclusion

Contra funds and value funds follow an unorthodox approach to buying stocks. Contra funds invest in underperforming stocks while value funds invest in undervalued stocks. 

But both contra funds and value funds are high-risk, long term investments that require thorough analysis, research and patience. Thus, it is crucial to speak to a wealth coach to know if you should invest in contra funds or value funds. 

Watch this video to know why it is important to have a trusted wealth advisor


Note:

Facts & figures are true as of 20-10-2021. All information mentioned is for educational purposes and relies on publicly available information. None of the information shared here is to be construed as investment advice. We strongly recommend you consult a Cube Wealth coach before investing your money in any stock, mutual fund. PMS or alternative asset.

Shriram Shekhar
Shriram is a Content Marketer at Cube Wealth, the Financial Freedom App with a smart Perfect Portfolio Planner. He has developed cutting edge IT products for over 2 years before turning to his passion for the written word. Shriram’s love for philosophy, product development, and empowering people through quality content is what got him to Cube Wealth.

Top 5 Reasons To Try Our Powerful Investment App!

Schedule a call based on your convenience. And get an expert to help you invest.

  • High Quality Mutual Funds
  • Top Notch Stock Advisory
  • Invest in U.S. Stocks
  • Alternative Investments
  • Low Minimum Investments
Try Cube’s Exclusive Wealth Concierge Service! We offer a 10-minute portfolio analysis and set up service to select users.

Want the best
investment blog delivered straight to your inbox?

Thank you for joining our mailing list!
Oops! Something went wrong while submitting the form.

Similar Posts

No items found.

SIP Posts

Calculate your
SIP returns

Calculate your
Lumpsum returns

Grow your money without wasting time

on stock picking, poring over excel sheets, financial news, analyzing market trends, tracking the Sensex, researching company fundamentals, comparing mutual funds, reading financial reports, trying to predict the future & losing your sanity!