Contra Mutual Funds: Make Striking Returns for Portfolio

Introducing the Contra Mutual Funds

Did you know a mutual fund category that delivers exceptional returns? Yes, there is. Introducing Contra Mutual Funds, an amazing opportunity to boost your portfolio returns. How? Let’s figure this out with this post.

You see, contra funds follow a unique investment style, contrarian investing. This approach focuses on finding potential companies, currently showing underperformance.

In this article, you will see how contra funds work, their key benefits and associated risks. Moreover, why they might be a valuable addition to your investment portfolio.

Let’s start by learning a quick overview of this category which will define the meaning.

Understanding Contra Mutual Funds

Contra funds are funds that invest in neglected or unpopular shares in the market. In most cases, fund managers apply a contrarian style of investing. It implies that they will invest in the stocks that are currently losing in the market. Meaning they are intended to buy these stocks at a relatively cheap price. Furthermore, their face values will increase if the price appreciation is achieved over time.

Next, you will analyze how this category actually works.

How Do Contra Mutual Funds Work?

Here is a step-by-step guide to this contrarian style funds work:

1. Contrarian Investment Strategy:Contra fund purchases stocks that are in the negative sector. Although showcasing strong fundamentals. The concept is that these stocks will later increase in value. Thus making wealth for the investors.
2. Long-Term Perspective:Contra funds have a long investment period of five years or more. It enables substandard stocks that are selling below their value to recover. Thereby attaining the right value of their importance.
3. Diversified Investments: These funds are invested across various sectors and industries. This cuts the risk which is bound to be occasioned by the poor performance of specific stocks.

Second on, you will find the various advantages of investing in these funds.

Advantages of Investing in Contra Mutual Funds

Here are some interesting merits of Contra funds:

1. High Return Potential:Contrary to what it has been intended for, contra funds can offer massive gains. Even when market sentiment changes and such stocks bounce up. In the history of stock markets, analysts have discovered that most of the contrarian stocks are usually very good stocks in the long run.
2. Lower Downside Risk:Indeed, contra funds may present certain protection during bearish markets. It is because the invested companies are rock-solid businesses. Plus their stocks are treated at a discount to their actual value.
3. Access to Undervalued Stocks:Corporate investors get an opportunity to invest in quality firms. Eventually at much lower prices than when the market regains confidence in those companies.
4. Expert Fund Management: As it will be observed, contra mutual funds are managed by experienced managers. They analyze the market to find out the underpriced stocks. This expertise helps in identifying these companies with good potential. Moreover, assists in reducing some risks incurred by investors.
5. Hedge Against Market Fluctuations: A contra fund invests in stocks that are cheap in the market. Therefore are more reliable in unstable markets compared to other equity funds.

Now, you will check the suitability of this category for your portfolio.

Should You Invest in Contra Mutual Funds?

Contrary to mutual funds aren’t for everyone. They are best suited for:

1. Long-Term Investors: Contra mutual funds may be suitable for you if you are ready to invest for five years or more. Moreover, if you are willing to take risks and go through the regular changes in the market price.
2. Risk-Tolerant Investors: Contra funds will attract those investors who can keep patience. And can afford to take long-term positions that may experience short-term downturns.
3. Value-Oriented Investors: If you are hunting for good small-cap companies on the market that are not aggressively chased. These funds identify the potential in undervalued stocks and turn them into good value.

Let’s discuss the associated risk before including its stock in your portfolio.

Risk Connected with Contra Mutual Funds

Here are the risks related to contra funds:

1. Increased Volatility: Contrary to mutual funds that invest in underperforming stocks contra funds are more volatile than the normal equity funds. These equities may attract volatility in the short run; therefore, they are unsuitable for investors who want fast returns.
2. Long Waiting Periods: He found that it can take many years before extremely undervalued stocks return to normal, if at all. Businessmen have to be willing to wait as the gains can take quite a while to come through.
3. Higher Expense Ratios: Most active managed contra funds are characterized by relatively high expense ratios. Thus, your overall gains stand a risk of being reduced if the fund performs poorly.
4. Potential for Underperformance:First of all, often the prospects of the chosen stocks fail to recover to the extent that was expected in advance. However, if going against the norm does not work out, the investors are likely to go through periods of poor performance for a long time.

Final Words

The Contrarian mutual funds form a unique investment category as they invest in those stocks that have been beaten down. These hold underlying benefits and are expected to release value in the future. Investing via SIP would be a wise choice in this scenario.

However, such funds are not without their own sets of risks such as high risk. The fluctuations and the possibility of the fund underperforming another fund. Because of their contrary nature, they may be so much fun a proposition for long-term investors with a relatively higher tolerance to risk.

As always when discussing investment options, to approach contra funds, it is crucial to define the purpose of investment.  The risk tolerance level, and investment time frame. It is therefore advisable to do research before investing in these new styles of funds. To apply them more intelligently within your investment portfolio. You can follow this process to enjoy higher returns in the long run.