What Are Contra Mutual Funds?

A contra mutual fund is an equity mutual fund. This means that a contra fund invests primarily in stocks. The orthodox approach would be to invest in the best-performing stocks. 

But contra funds adopt a contrarian approach to investing in stocks. These funds buy underperforming stocks, including some stocks that give negative returns. 

The logic? Future potential. Underperforming stocks can be bought for a low price. The value of stocks may plummet due to sectoral,

What Are Contra Mutual Funds?

A contra mutual fund is an equity mutual fund. This means that a contra fund invests primarily in stocks. The orthodox approach would be to invest in the best-performing stocks. 

But contra funds adopt a contrarian approach to investing in stocks. These funds buy underperforming stocks, including some stocks that give negative returns. 

The logic? Future potential. Underperforming stocks can be bought for a low price. The value of stocks may plummet due to sectoral, political, or economic issues. 

However, historical data suggests that it is possible to recover from these slumps over time. The fund manager will hold on to the stocks until they gain value or demand and sell them during a favourable market phase. 

The future gains that the stock will make over the long term can offset the losses incurred during the investment journey. But all of this operates on delayed gratification and future potential.

Both of these concepts require patience, expert knowledge of the markets and a keen eye to spot potential. Thus, the track record of the fund manager becomes crucial to gaining value out of the investment. 

Features Of Contra Mutual Funds

1. Name derived from the “contrarian” investment approach

2. Equity funds that invest in underperforming stocks and sectors

3. Underlying principle belief is that crowd mentality leads to very high or very low stock prices

4. Suitable for the long term due to the underlying principle

5. There are only 3 contra funds available to Indian investors

Fun fact: A fund house can either offer a contra fund or a value fund but not both due to SEBI guidelines. 

Factors To Consider Before Investing In Contra Mutual Funds

Who Should Invest In Contra Mutual Funds?

Investors should be prepared for losses when investing in contra funds. The notional profits may be high and the losses can be hard on the pocket. 

That said, investors with a long term goal in mind may allocate contra funds to their portfolio. Contra funds require above average patience purely due to their portfolio of underperforming stocks with potential.

Speak to a wealth coach before investing in any contra fund. A wealth coach can help you with a detailed analysis of your risk profile and investment goals that can tell you if contra funds are right for you. 

How To Invest In Contra Funds?

The best way to invest in contra funds or mutual funds is by using the Cube Wealth app. Cube gives you access to handpicked recommendations from mutual fund experts, Wealth First. 

Moreover, Cube’s advisor doesn’t just tell you when to buy a contra fund, they even tell you when to sell the contra fund at the right time. This can be very useful given the underlying principle of contra funds. 

The Cube Wealth app also helps you invest in mutual funds in a straightforward and convenient way with the help of options like QuickSIP and SuperSIP. 

Download the Cube Wealth app or speak to a wealth coach today to know more about investing in the best contra funds. 

A snippet of contra funds currently being recommended by Wealth First:

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Conclusion

Contra funds get their name from the contrarian investment style that they follow. A contra fund will invest in less desirable stocks and sectors that are underperforming but have future potential. 

Thus, there are above average risks associated with contra fund investments. It is advisable to speak to a wealth coach before investing in any contra fund.

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