These mutual funds invest in stocks and follow a strategy of purchasing and selling in contrast to the prevailing market sentiments. The underlying assumption is that herd behavior among investors often makes the market very costly or very cheap at times.
Contra Funds invest in shares of companies which are being ignored by wider market participants in the expectation that eventually the value will be recognized and gains will be superior. Contrarians believe that exuberant stock demand or no stock demand leads to market mispricing and imbalance. Investors have a herd mentality of buying trendy stocks which make such stocks overpriced. Therefore, Contra Fund managers go against the tide instead of buying those trendy shares.
Suitable for investors who are willing to take higher risk and have a longer time horizon as value realization in undervalued stocks could take time.
The minimum investment varies from scheme to scheme. It could range between Rs.100/ – to Rs.5,000/ -.
Contra Funds receive the same tax treatment as other equity funds.
• Short term capital gain (less than one year): 15% of gain
• Long term capital gain (more than one year): 10% of gain in excess of Rs one lakh per year.