Due to technological advancements now Investors have diverse options for investment, which has created new opportunities in the financial market. If you want to diversify your portfolio by Multi-Asset Allocation, Contra mutual funds might be an interesting option to build a diverse portfolio.
Contra mutual funds stand out among others for their unique approach to investing. This blog will provide a complete insight into the world of contra-mutual funds.
5 Things you should Know About Contra Mutual funds
Here are 5 things you should know about one of the best equity mutual funds.
Contrarian Investment Approach
Contra mutual funds are mainly built on a contrarian approach to investing. Unlike other conventional mutual funds, contra-mutual funds work differently by investing against the trend of high-priced stocks in well-established sectors.
This involves searching for companies that are unfavoured and unnoticed by the rest of the market or are priced below their true worth. This contrarian strategy helps contra mutual fund managers make a profit out of mispriced assets.
In contrast to other mutual funds, contra mutual funds attempt to find funds that are low and will sell high in the future, which will ultimately give them a good return on their investment.
Undervalued Stocks
Another major feature of contra mutual funds is making investments in underpriced funds. Contra fund managers actively search for companies that they think are undervalued in the market and invest in them. These funds are neglected or left unnoticed by other investors because of short-term problems, like, lack of good earnings reports, no new product, problems with authorities, or the whole industry.
However, contra mutual funds see these funds as opportunities with an expectation that the market will eventually wake up and these undervalued funds will achieve their appropriate value.
Long-Term Investment Horizon
While other mutual funds try to capitalize on brief market fluctuations, the contra mutual funds focus on a long investment horizon. Contra fund managers have a disciplined and patient approach to investing, in contrast to other investors who are more focused on temporary price changes.
They concentrate on the long-term potential of undervalued funds and their realization in the market. This long-term view requires patience, discipline, and a focus on intrinsic value rather than temporary market fluctuations.
Diversification Benefits
Investing in contra mutual funds offers diversification benefits to investors, especially if they want exposure to a variety of industries and sectors. Contra mutual funds provide investors access to a wide range of opportunities while reducing the risks involved with investing in a portfolio of undervalued stocks from a variety of industries.
Furthermore, in a diversified portfolio, counter mutual funds can be a valuable addition, boosting overall performance and offering a possible source of income. However, since diversification by itself does not ensure protection against losses, investors must make sure that their contra mutual fund investments are in line with their overall investing objectives, risk tolerance, and time horizon.
Performance Potential
Contra mutual funds can produce attractive long-term returns, but they may also have periods of underperformance, especially during market fluctuations. Contra mutual funds aim to produce good returns for their investors.
Investors have to understand that past performance does not guarantee future success, and that fund management strategies and market conditions might affect the outcome of an investment.
The Bottom Line
In conclusion, contra mutual funds provide investors a unique opportunity to make money from any market inefficiencies and produce attractive long-term returns. Contra mutual funds are the perfect pick for those investors who are looking to diversify their portfolios. Before investing in contra mutual funds, investors should make sure that their choices follow their risk tolerance and financial objectives. If you are looking for a platform to invest, consider Dhan.
