Risks and Benefits of Contrafunds


Contrafunds are equity mutual funds with a contrary market view. Contrafunds invest in stocks below their fundamental value in the long run. Although contrafunds are suitable for investors with advanced knowledge of macro trends, they come with some risk. Read on to learn about the benefits and risks of contrafunds. We’ll also discuss how contrafunds differ from conventional equity mutual funds. Listed below are some characteristics of contra funds and what makes them unique.

Contrafunds are equity mutual funds with a contrary market view

A contra fund is an equity mutual fund with a contrary market view. The managers of such funds assume that a certain asset will gain an average value over the long term, which is the primary reason they earn a higher return than the index. Contra funds are not for everyone. If you can’t bear the risks of losing some of your portfolio, then contra funds aren’t for you.

Unlike other types of mutual funds, contra funds invest in companies with strong fundamentals, but undervalued in the short term. Contra funds typically buy stocks that other investors would avoid, such as blue-chips that have been struggling in the market. Contra funds may have a long underperformance history, but they generally perform well when markets rebound. Contra funds may also require a long investment horizon.

They invest in stocks at a cost below their fundamental value in the long term

Contrafunds are funds that invest in shares of underperforming companies. They do so by betting against prevailing market trends, and by buying underperforming and depressed assets. They believe that the herd mentality will eventually lead to an asset’s mispricing, which will then gain momentum over time. Contra funds generally invest in stocks that are cheaply valued and can be a good long-term investment.

The Contrafund fund is managed by William Danoff, a graduate of Harvard University in 1982. He also earned his MBA at the University of Pennsylvania. He joined Fidelity in 1986 as a research analyst and portfolio manager, and has continued to be a great asset for investors. He has demonstrated his skill as the Contrafund grows in size. The strategy is designed to generate capital appreciation by buying stocks at a price below their fundamental value in the long term.

They are suitable for investors with advanced knowledge of macro trends

Contrafunds are equity mutual funds that invest in stocks and sectors that are underperforming. They are lower risk than sectoral funds, but they may also hold a more concentrated portfolio to capitalize on stock selection. In addition, they may invest in defensive stocks that do not show a clear trend. As with all equity mutual funds, these contrafunds carry a risk of making the wrong call, and they have historically underperformed in bull markets.

They come with some risk

One of the most common risks of contrafunds is price trap, a phenomenon where stocks go down even though many investors believe they are good value. This situation happens when a contra fund buys a company whose shares are undervalued. The fund then reaps the benefit when sentiment changes and the stock price increases. This approach is risky because contra funds may not achieve the desired returns. However, these funds are less volatile than the general market, and the risk associated with them is lower.

Although contra funds come with some risk, they are generally a sensible investment strategy for long-term investors. Contra funds generally purchase stocks at low prices and benefit from the price increases after the market rebounds. Experts recommend that investors allocate at least ten percent of their portfolio to these funds, which may not be the case for every investor. For the best returns, consider making a diversified portfolio with a mix of contra funds and growth stocks.

They require a minimum investment

A contrafund is a mutual fund that invests in underperforming assets. You will need to be patient with these funds. The returns from them may take months or years to materialize, and you might have to wait for the businesses to recover. However, the risk is worth the reward. This type of investment requires a minimum investment of Rs. 50,000 and can be a great way to increase your net worth. Contra funds can be purchased in lump sums or via a SIP or an annual investment plan. SIP allows you to invest a fixed monthly amount into the fund and build up a sizable portfolio over time.

Unlike traditional mutual funds, contra funds are volatile and can force you to sell your stocks at the wrong time. They’re not for impatient investors or traders. They require patience and a minimum investment amount to get started. However, if you are patient and can wait for the market to recover, you might end up with a profitable investment. Contra funds typically require a minimum investment amount to invest, so it’s not for every investor.