Equity mutual funds garnered Rs 8,637 crore in June 2023, making it the highest net inflow in the past three months, as per the recent data released by the Association of Mutual Funds in India (AMFI).
In the current market scenario which is showcasing a positive sentiment, investing in contra-mutual funds could be considered with a view to making gains in the long run.
Contra-mutual funds are open-ended equity schemes that focus on stocks of companies that are underperforming in the short run.
The core idea behind this contrarian investing strategy is that buying stocks at a low price today will prove to be profitable in the long run when the short-term challenges of the company get resolved and the stock experiences a rally.
Of all its assets, a contra-mutual fund tends to invest at least 65% in equity as well as equity-related instruments.
It is important to note that contra-mutual funds are designed in a way to provide gains in the long run. So, prior to investing an investor should consider their investment horizon as contra funds will not prove to be beneficial on a short-term basis.
Moreover, contra funds may not be the preferred choice of every investor considering they adopt a strategy of investing in commodities and stocks that have experienced a slump.
Also, market performance doesn’t influence contra funds as much as other mutual funds as what really matters is the performance of individual stocks or the resolution of challenges being experienced in a particular sector or industry.
In the case of contra funds, an investor is likely to gain even if the market is experiencing a downturn and vice-versa.
Contra funds could be safely categorised as an asset tool with moderate to high risk and return. Therefore, as an investor, it is essential to know the risk appetite and make the move of investing in such funds.
Rajiv is an independent editorial consultant for the last decade. Prior to this, he worked as a full-time journalist associated with various prominent print media houses. In his spare time, he loves to paint on canvas.
