Contra Fund-
In a contra fund, the manager mostly invests in the stock of firms that aren't doing well right now. Stocks are expected to rise sharply in value if the company's current crisis can be rectified and bought at a discount now. A contrarian strategy to investing, in other words, is to acquire low-priced stocks today in order to reap high profits later.
What are the benefits of investing in a contra fund?
Contra funds invest in companies that are undervalued and underappreciated by the majority of investors.
Enterprises with short-term problems can generate high returns and beat the general market since investors don't appreciate businesses with short-term problems.
These companies have a lower risk of losing money if the market or the industry in which they operate declines, because they already have a cheap price relative to their peers with similar business fundamentals.
Contra funds are a good diversification strategy in times of market corrections and collapses since they have a low correlation with the broader market.
In contrast funds, big rallies are common when transitory issues are resolved, whether they are company- or industry-specific.
Contra funds are taxable or not?
This fund is classified as an equity fund since it invests a large portion of its assets in counter funds. Because it is an equity fund, its profits are taxed as if they were gains on any other stock fund.
It doesn't matter what tax bracket the investor falls under; short-term capital gains (gains realised within a year of investing) are subject to a 15% tax rate.
Long-term capital gains (profits realised after one year of investment) are free from taxation up to Rs. 1 lakh, and such gains over this level are taxed at 10% tax rate.
In the investor's hands, dividends from such investments are taxed according to the investor's tax bracket.
Who should invest in contra funds?
Investments in contra funds are long-term holdings since they require time to recover and return to profitability. To avoid further potential losses, traders and impatient investors who are inclined to sell on negative news should avoid using contra funds.
A pleasant and lucrative contra fund awaits those who can sit tight, manage their anxiety, and wait for business circumstances to recover and equities to realise their full value. In certain cases, it may take longer than expected for things to improve.
Contra Fund risks:
Contra mutual funds include the following risk factors:
Due to a time limitation, there will be no profit –
Contra funds are acquired over a lengthy period of time, say five years, since they invest in enterprises experiencing temporary difficulties. However, if the difficulties are not resolved within the specified time frame, fund managers exit the position to chase other possibilities, which results in some assets being sold at a loss, resulting in opportunity cost.
Suffering losses as a result of the problem's persistence –
The seemingly manageable corporate problem may become much larger. This leads in the stock position being sold at a loss in order to preserve money and avoid additional losses.
Indian Contra Fund's list-
Indian investors have a choice of just three mutual fund firms that can provide counter funds:
SBI Contra Fund
Kotak India EQ Contra Fund
Invesco India Contra Fund
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