This is part III of the article Contra Funds: An Introduction to Contra Funds . Please start with the first part before proceeding with this one.
Another way followed by fund managers to avoid paying high prices for the stocks they want to buy is follow “Algorithmic Trading”. What they do is that everyday they place a partial order. Suppose they want to buy 20 lakh shares of XYZ stock. They go for algorithmic trading by placing order of 2 lakh today, another 3 lakh tomorrow and so on. However, at the end of the day every fund has to declare what it has bought and sold and this info is available on the website of Association of Mutual funds of
So be it contra fund or value investing fund or large cap, mid-cap, small cap fund; each of these funds works on the same basic principle. Each is subject to market pricing and not the price that they believe is correct. Each takes commission for professional money management. The story is no different for contra fund. It’s just another way of presenting a product that ultimately works on the same market conditions. As I’ve explained in my previous post Buying Insurance Policies and Investment Products, it is the presentation that people tend to buy overlooking the real product.
Have a look at the charges of JM Contra fund:
2.25% Entry load, 1% exit load if withdrawn within 6 months (2.25% for SIPs if withdrawn within a year).
Ultimately, “Investments are subject to market risks” – No guarantee of returns and risk is borne by the investor. The fund manager and his team make a happy living with the commission in the form of entry and exit loads. I’m not saying that these funds will surely fail, but the explanation above is for giving a complete and clear picture of the fund.
It’s your call; take the risk for the hope of returns or look for alternate investment products. :- )
Keep visiting this blog for further content.
Please read the comments and post your views and queries in the comments section which helps in open discussion and avoid duplicity of questions.
9 comments:
Excellent Article Man!
Seriously, Your articles rock - language so simple, yet highly effective.
Keep up the good work!
Hi Shobhit,
This might not be the right place for my query, but if you remember i had asked you about my HDFC pension plan policy, i wanted to surrender it. and you asked me few questions, here are some more information.
My plan is standard plan (not ULIP). 20k per year, for 22 yrs. Sum assured is 5 lacs. They clarified that i will not get anything if i surrender within 3 yrs. I have already paid 15k towards premium.
They will pay some bonus amount yearly, last year they paid Rs. 22.25 for per thousand Sum assured. i have no idea how much they will pay as bonus in future..will you please suggest me whether i should continue this policy or not. I know that i should have thought upon all these questions before applying for the policy but anyways..
Please suggest me the way.
Thanks
Aniruddha
In continuation of what Shobhit has written about Contra Funds, I would like to quote one article below for the readers of this blog, to help them decide whether they should invest now in contra funds. This article appeared in Mumbai edition of The Times of India.
===========================
Source: The Times of India,Mumbai, 16th July 2007, Page 24
Contra funds don’t suit India
It pays to think differently—especially if you are an investor in the stock market. No wonder mutual fund houses are warming up to the contrarian approach to investment. This means they invest in stocks and sectors that market players ignore because of short-term negative factors. Then they wait for the market to realise the full potential of these stocks. Fund houses like DBS Chola, Kotak, SBI, Tata and UTI already have contra funds in their stable. JM mutual fund is the latest to join the fray. Should you invest in a contra fund?
“The contra fund is a fairly sound concept," says Sameer Kamdar, country head, mutual funds, Mata Securities. “However, existing funds have belied expectations.” Still, he is quick to point out that their lukewarm performance has more to do with the Indian stock market than with the fund houses themselves. “The Indian market has been a secular bull run in the last five years. Take any sector, be it banking, infrastructure, or the financial sector—every sector is up. Probably, the market is going to see a bull run for next five years or so. How do you adopt a contrarian approach in such a situation?”
Kamdar adds that the performance of contra funds doesn't inspire enough confidence in him to recommend these schemes to anybody. “The average returns for contra funds for the past year is around 35%, whereas diversified funds returned around 48% in the same period,” he points out. “I would not advise it (investing in contra fund) as a mainstream strategy. In a market like the US, it would be a great idea to invest in a contra scheme, where you would find many sectors to invest,” he says.
“As a concept, the contra schemes are a sound idea. When the market is in the grip of bears for a long time, they can actually deliver better returns,” says an investment advisor. “For me, it is part of my defence strategy against a fall in the market. Having a small percentage of your total equity portfolio in contra schemes would serve you well,” he adds.
So if you think troubled times are just around the corner, contra funds are a great strategy. If you think the market is likely to boom in the coming years, you can give them a miss.
==================
Best wishes to all.
ANIL RAI (anil.h.rai@gmail.com)
excellent...i want to know one thing...why r u sharing all this knowledge free to us when u can use the same tricks and make money....it is no offense to you but just my eagerness...
Excellent Work, Shobhit!!!
Can you please tell me the answer to one question?
How can we find which stocks are being bought over by Mutual Fund today or in some duration?
For example: Now a days, IT sector / sugar sector are in bad shape. How to find a stock like balrampur chini being bought over by the mutual fund today or in some duration? I could not find any link on http://www.amfiindia.com ? :((
Thank you.
Keep up the good work!!
Hi Shobhit,
Your articles are really informative.
MAgnum Contra is doing really good for past some time. So shall it be taken as as exception. It constitutes 15% of my portfolio. Pls advise
Sorry for the late response...
For knowing about MF buying, u should visit their website and see the portfolio holdings section.
Otherwise AMFI website will also give details.
Thanks,
Do Contra Fund really stick to contrarian approach? Or it is just marketing gimmick, when they see that other one or two funds named "contra fund" has performed well in recent time and they have attention of investors.
Post a Comment