Mutual fund investing offers various options, but contra funds are notable for their strategy of investing in undervalued or less popular stocks with high growth potential.
Unlike traditional equity funds that focus on established, high-growth stocks, contra funds take a contrarian approach to achieve significant gains as market sentiments change. This blog will explore when to enter and exit contra funds to maximize returns.
Understanding Contra Fund
A contra fund is a type of mutual fund that strategically invests in stocks believed to be undervalued or temporarily unpopular. This investment approach is based on the principle of buying assets when market sentiment is negative and selling them when the market rebounds.
Contra funds typically focus on long-term growth, as it may take several years for the market to recognize the true value of these investments.
When to Enter Contra Funds?
Your returns may vary depending on when you enter the contra funds. Think about joining during:
- Market Downturns: When stock prices decline during economic downturns, buying opportunities frequently arise, making conta funds a desirable entry choice.
- Sector-Specific Weakness: Contra funds have the ability to profit from undervalued businesses in specific industries when they experience brief difficulties. Investors may profit from entering at this point while the industry recovers.
- Making Long-Term Goal Plans: Contra funds may be the best option for investors who have the patience to wait for a complete market recovery and have long-term financial objectives, such as retirement.
When to Exit Contra Funds?
Exiting contra funds is as strategic as entering. Consider exiting in the following situations:
- Financial Goal Realization – If your investment has reached the financial goal you set, such as a target amount for a home down payment, it’s a good time to exit and lock in your gains.
- Overvaluation – When previously undervalued stocks become overvalued due to market enthusiasm, the growth potential may diminish. Exiting at this point can help secure your profits.
- Fund Performance Changes – If a fund’s performance is consistently below expectations, or if there’s a significant strategy shift, it may be time to exit.
Should You Consider Investing in Contra Funds?
Investing in contra funds may not suit every investor. It’s vital to evaluate your risk tolerance since these funds tend to carry more risk than traditional investments, making them less suitable for those averse to market fluctuations.
Additionally, contra funds work best for investors with a long-term horizon, typically over five years, so it’s important to align your investment goals accordingly. Conduct thorough research into the fund’s strategy, performance, and fees to determine its fit for your portfolio.
Using a lumpsum calculator can help estimate returns for those considering a one-time, large investment. A calculator allows you to enter the amount and expected growth rate, offering insights into projected returns over the desired period.
Top Contra Fundss for Investing
Investors who want to use contra fundss for diversification have a number of excellent choices. The top three counter funds to think about in 2024 are as follows:
- SBI Contra Fund:
Over the past five years, this fund, which is renowned for its reliable performance, has produced returns of 31.34% on average.
- Kotak India EQ Contra Fund:
With a 5-year growth history of about 24.13%, this fund provides investors with consistent returns, making it the best choice for individuals seeking solid long-term gains.
- Invesco India Contra Fund:
Over the past five years, this fund, which has a diversified portfolio and focuses on undervalued companies across industries, has produced returns that are around 24.58%.
Conclusion
Contra fundss present a unique investment strategy for those willing to adopt a contrarian market stance.
By timing their entry during market downturns or economic uncertainties and knowing when to exit, investors can enhance their returns. With patience and a strategic approach, contra fundss can significantly enrich a well-diversified investment portfolio.
