Contra Funds are a type of mutual funds. Contra means opposite. These funds also invest in such a manner. They invest in stocks that are out of the popularity. The experts managing such funds see embedded potential in such stocks and think they can perform better in the long run. Hence they invest. The stocks they get are cheap and hence it is not expensive. The biggest benefit is that Contra Funds fare well when the market is down and the regular popular stocks run out of steam. At these times the contra stocks gain in price and benefit the fund in general. Let us illustrate it with an example:
TATA Contra Fund has given a return of 13 percent over the last 5 years in a compounded manner. It invests in segments such as food, beverage and media apart from the usual popular stocks. The fund gained significantly when the popular stocks ran out of steam and the contra stocks gained momentum.
The basic philosophy behind this sort of investment is its investment method. The investment is made in sectors that are overlooked by the market. The experts feel that the potential of the particular stocks is yet to be discovered. Hence in the long run these funds gain momentum.
However there is a significant risk in this type of investment. The experts may go wrong. The stocks may fail to realize their full potential ever. Government policies play a major role in performance of a particular sector. It may happen that due to change in policies, in the future the targeted sectors get affected negatively. But in expert hands and with proper calculation, contra funds may be a good bet for the future.