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All you must know about contra and value MFs

July 09, 2010 16:32 IST
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What are contra mutual funds? What are value mutual funds? Which are the best value and contra mutual funds available in market today?

Are they related to any particular sector? Do they help in tax planning?

In a chat with Getahead readers on June 22, Dhruva Raj Chatterji research manager at iFAST, AMFI registered mutual fund distributor, answered queries about contra and value mutual funds.

For those who missed the chat here is the transcript.

Bala asked, Is contra fund related to any sector?

Dhruva Raj Chatterji answers, Hi Bala, Contra fund is not related to any sector. Contra stands for contrarian funds, and it involves picking those neglected / out-of-favour stocks and sectors which may be undervalued today, but show promising potential for growth in the long term. Thus Contra funds are ideally suited for investors with a willingness to stay invested for a long-term to realize the full potential of contrarian investments.

sundars asked, If DTC is implemented, then how the tax for the gains from mutual fund investment will be calculated?
Dhruva Raj Chatterji answers, In case of debt oriented funds the entire capital gain would be added to your income and taxed as per the marginal tax rate.

sundars asked, how about Divident yield it good for longer term..say 5 years-8 years
Dhruva Raj Chatterji answers, Dividend yield funds invest in those funds that provide higher dividend yield. Uusually, dividend funds are consider to be safer investment than diversified or other equity funds, and they give relatively lower returns as well. In the even of a market correction, it is observed that dividend yield funds are relatively less impacted.

arindam asked, What r the best among contra fund
Dhruva Raj Chatterji answers, Our recommended contra funds are SBI Magnum Contra and Religare Contra Fund.

Consultant asked, Suggest 2-3 value funds and contra funds each..
Dhruva Raj Chatterji answers, Our recommended value fund is ICICI Prudential Discovery Fund

nitin asked, hi dhruv, i am investing in mutual funds through SIP. my SIP's are reliance diversified power,ICICI infrastructure,HDFC top 200 and sundram bnp paribus capex oppurtunity fund.i am investin 1000each per month. is all SIP should i continue
Dhruva Raj Chatterji answers, Hi Nitin.. they appear to be be good funds. Please continue.

VIJAY asked, How good is Reliance Growth fund?
Dhruva Raj Chatterji answers, Reliance Growth fund is a our recommended midcap fund. The fund has long performance track record and is also one of the largest funds in terms of assets. It has managed to outperform its peer group funds and index over various periods

Dhruva Raj Chatterji answers, There still is not much clarity on this. However the government has mentioned that only five investment vehicles will be allowed EEE status and ELSS funds are not included in that. These five include: 1.Government Provident Fund (GPF) 2.Public Provident Fund (PPF) 3.Recognised Provident Funds (RPFs) and 4.The pension scheme administered by Pension Fund Regulatory and Development Authority (like the New Pension Scheme) and 5. Approved pure life insurance products and Annuity schemes

Consultant asked, how is DSP Balanced fund? I have bought hdfc prudence fund and dsp balanced fund. hdfc is giving good returns already while dsp is lagging.should i invest in other or continue with dsp??
Dhruva Raj Chatterji answers, Amongst balanced funds, both HDFC Prudence Fund and DSP Blackrock Funds are our recommended funds, although you can have a higher exposure to HDFC Prudence Fund

ajit asked, Sir, which is best ELSS fund for invesmant?
Dhruva Raj Chatterji answers, Our Recommended ELSS fund is HDFC Taxsaver Fund

Piyush asked, Hi, PLEASE_REPLY_TO_ME I have Religare Contra Fund, ICICI Pru Discovery Fund, ICICI Pru Dynamic Plan, DSP BR Top 100 Equity fund, DSP BR Equity Fund and Birla SL Dividend Yield Plus, Reliance RSF-Balanced and Reliance Equity Opportunities Fund. All are investments via SIP and in growth options. I wish to hold them for 3-5 years. Is the selection good ?
Dhruva Raj Chatterji answers, Hi Piyush, You appear to be invested in some good funds. Please remain invested.

kiran asked, what is the procedure to invest in Mutual Fund?
Dhruva Raj Chatterji answers, For debt funds you may want to look at the funds which have pconsistency in performance, have higher asset quality (higher credit rating), lower expense ratio and funds which have less sensitivity to interest rates as measured by the duration. So lower the duration or average portfolio maturity, less is the interest rate risk.

Kumar asked, Hi Drruva, Can you please tell something about Reliance Pharma Fund
Dhruva Raj Chatterji answers, Reliance Pharma fund is a sector fund that invests in pharma or halthcare stocks. The fund is one of the best performing pharma funds and a recommended fund. It has done very well in the last one year due to rally in pharma stocks. However you must note that due to concentration in just one sector, sector fund are relatively more riskier than diversified equity funds.

Kapil asked, Hi in looked at portfolio pf many contra funds, but found that they are all investing in main stream & blue chip equities. can you suggest the ones that are true contra funds? thanks
Dhruva Raj Chatterji answers, Hi Kapil. You have a very interesting and correct observation. It is true that many of the contra funds are investing in sectors and stocks that prestly favoured by the markets and not sticking to their invetment mandate.

Kapil asked, Hi in looked at portfolio pf many contra funds, but found that they are all investing in main stream & blue chip equities. can you suggest the ones that are true contra funds? thanks
Dhruva Raj Chatterji answers, For example most of the contra funds have highest allocation to Banking, Oil & Gas, IT and pharma sectors .... conventionally many of the diversified equity funds also have high allocation to these sectors.

bvmallikarjun2 asked, SUGGEST ME 3 DEBT FUNDS FOR 1 YEAR HORIZON
Dhruva Raj Chatterji answers, Since we are are in a scenario of rising interest rates, it would be preferrable to avoid longer tenure bond funds like medium - long term income funds and gilt funds. We advise investment in short term funds and floating rate funds where the interest rate risk is lower. Our recommend Short term fund is Reliance Short Term Fund and recommended Floating Rate fund is HDFC Floating Rate Fund - Long Term Plan

kumar.vickys1 asked, which is the best mutual best in diversified section
Dhruva Raj Chatterji answers, Our recommended diversified equity funds are HDFC Top 200, DSP Black Rock Top 100 Equity Fund.

raulmanoj asked, Sir, Which is the best Index fund for investment? and how do judge it?
Dhruva Raj Chatterji answers, Index Funds are a passive investment vehicle. Here the fund manager just replicates a index like the Sensex or Nifty and there is not active fund management involved. One way to choose an index fund is looking at the tracking error i.e. the difference in performance between the index and the fund. Our recommended index funds are HDFC Index Fund - Senex Plus Plan and UTI Master Index Fund

SHANS asked, hello Sir, I have bought AIG world gold fund... about 8 months ago... should i continue to invest in this fund thru SIP
Dhruva Raj Chatterji answers, Hi. AIG world Gold Fund invests in gold mining stocks abroad and not in actual gold. Thus it is a equity linked fund. We presently do not have a favourabe outlook on gold, and expect a correction in the asset class.

Dhruva Raj Chatterji answers, Our recommended short term funds are Reliance Short Term fund and JM Short Term Fund

Dhruva Raj Chatterji says, Thanks for your questions everyone. Do visit for more information and research on mutual funds.

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