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Introduction of Contra Fund
Contra Fund is one such mutual fund scheme that invests in stocks or sectors which are low-performing but have huge potential. In this write-up, you are going to read about what a Contra Fund is, its benefits, taxation, and other aspects of the fund.
What are Contra Mutual Funds
Contra Fund definition says Contra means contrarian and this name is given to this type of Mutual Fund because Contra Funds invest in stocks that have contradictory market views. Contra Fund meaning is to invest in funds that are not performing as per the market or performing low, and thus no one would invest in it generally. However, Contra Fund managers invest in these stocks as they have exponential potential to grow. Not all under-performing or low-performing stocks or sectors have the potential to grow in the future. So, the fund manager picks those stocks which have such potential.
Benefits of Contra Fund
- The first benefit of investing in Contra Fund is that you can expect a erratic returns. Since the underlying stocks in which the Contra Fund invests are cheap because of low-performance, but they have the ability to perform exceptionally well if any turnaround happens.
- Secondly, these funds invest in fundamentally strong companies. So, during times of turmoil in the market, your portfolio won’t get much affected.
- The minimum investment requirement in this Contra Fund is very low which enables the retail traders to invest easily.
Taxation of Contra Funds
If you redeem your investment in a Contra Fund before completing 12 months from the date of purchase, then your profits will be categorized as short-term capital gains and will be taxed at a flat rate of 15%.
On the other hand, if you’re taking profits after one year from the date of purchase, your profits will fall under long-term capital gains. In a financial year, if your long-term capital gains do not exceed Rs. 1 Lakh, then you’re eligible to get a tax exemption, and if it exceeds that, then the excess amount will be taxed at 10% without indexation.
Suppose you made a long-term capital gain of Rs. 1.50 Lakhs from an equity mutual fund in a financial year. Here, Rs. 1 Lakh will be exempted from income tax and the remaining Rs. 50,000 will be taxed at 10%.
Who Should Invest in Contra Mutual Funds
The Contra Funds are suitable for investors who can invest for a longer duration and have a risk appetite and are willing to take higher risks to earn higher returns.
As these funds invest in stocks that are under-performing at present but have the potential to grow in the future, hence there is a huge possibility that these stocks would be vulnerable and fluctuate in their pricing for long until they get stable. So, investors with a lower risk appetite or looking for safe investment shouldn’t invest in Contra Funds as they might not be able to handle the volatility of these funds.
Factors to Consider Before Investing in Contra Mutual Funds
- You need to be sure about the tenure of investment ,whether you can stay invested for long or not.
- You must understand that these funds are going to be very volatile, so don’t panic when the prices fall down.
- You must consider the expense ratio of investing in these funds to gauge the cost of investment.
How can you Invest in Contra Funds Through Nivesh
Any investor can enjoy the benefits of investing through Nivesh in the following easy steps:
- Create an account in Nivesh by providing your basic KYC details. (If you already have an account then just login into your account)
- On your portfolio page click on the Buy New tab at the right top corner of the screen.
- Select the category and choose the funds you want to purchase.
- If you already know the name of the fund to buy, then you can search the particular fund through Quick Order.
- Fill the transaction details and confirm. You can place up to 5 orders in one go.
- You can make payment through your registered account through UPI, Direct Pay, or NEFT/ RTGS , Bank Mandate or Cheque. For same-day NAV, select UPI, Direct Pay or NEFT / RTGS as other payment options may take a few days to clear, Nodal account takes about 1-2 days to clear payment from the approved mandate and cheque takes about 2-5 days in clearing due to which you will not get the same-day NAV.
Frequently Asked Questions (FAQs)
1. Is Contra Fund Risk-Free?
No, there is a high risk involved in investing in Contra Funds. However, if you can stay invested for long and choose the right fund, your earnings can be potentially high as well.
2. What is the Minimum Amount to Invest in a Contra Fund?
The minimum amount you would require to invest in the Contra Fund depends on the fund/scheme you are choosing. However, in general, you can start with a mere Rs. 500 via SIP investment.
3. How Long Should you Invest in a Contra Fund?
You must stay invested for at least five years in these funds. It will help you realize the potential returns from the fund.
4. Can we Redeem a Contra Fund Anytime?
Yes, you can redeem money from the fund at any point in time post accounting for exit loads if applicable. However, it is best not to as that will not help you get better profits.
5. Is There any Tax on Contra Fund?
Yes, the capital gains from these funds are taxable as per IT Act. You need to pay 15% STCG tax if you hold these funds for 12 months or less, and 10% if you hold it for 12 months or more without indexation benefit on profits made above Rs. 1 Lakh
