1. When Sebi recategorized and rationalized the entire gamut of mutual fund schemes, it included Value, Contra and Focused funds independently.
2. It is necessary for retail fund investors to know and understand their attributes before including them in their fund portfolio.
3. "Value" funds will mainly comprise of stocks which are:-
a) Undervalued with potential to deliver superior risk-adjusted return in the long-term,
b) Trading at a deflated price due to market exaggeration and displaying lower PB & PE or higher dividend yields,
c) Having hidden assets (as per the fund house's own perception) that the market has not spotted yet, with a turnaround potential.
4. "Contra" funds will mainly be comprising of stocks performing against the general market - vice versa of bullish or bearish - and staying long in them till the "herd mentality" reverses, with the expectation of benefits in the bargain.
5. "Focused" funds will be concentrated in a maximum of 30 stocks where the fund house feels that there are better prospects of delivering above average profits and growth in a "named" specific market cap (multi, large, mid, or small) category, with lesser emphasis on their existing market prices.
6. Risk awareness about these funds will, therefore, be handy while investing in them:-
a) A "Value" fund may be lesser vulnerable with a lower downside, being comprised of currently out-of-favour stocks, with lesser buyer expectations, but could have a "value trap" risk where a fund manager may believe it is a good valuation pick, but its price may continue to drift lower, with anticipated turnover never happening, forcing him to bail out at a loss.
b) It may also tend to under-perform in rising markets (when investors are willing to pay a premium for future growth) since these funds won’t be investing in high-growth and high-valuation stocks.
c) Also, price discovery in these stocks could take a longer time, testing the patience of the fund manager as well as the investor, at times.
7. A "Contra" fund will have higher risk than the conventional diversified fund, and may require "timing" of entry and exit (as they would be mainly invested in stocks of under-performing cyclical sectors) depending on improving (or deteriorating) prospects of their products, services and pricing power.
8. A "Focused" fund will invest in a limited number of 30 stocks, mostly of higher valuations due to future growth prospects, and any setback in these companies or any below-par earnings could impact their stock prices, hence the fund's NAV, considerably.
9. Overall, even for an aggressive investor, inclusion of these funds should be limited to his own risk appetite for safeguarding against volatile over-exposure and erosion.
10. The remaining portfolio should continue to comprise of diversified mutual funds belonging to other categories, while ignoring thematic / sectoral funds as they are most risky for long-term investment.
2. It is necessary for retail fund investors to know and understand their attributes before including them in their fund portfolio.
3. "Value" funds will mainly comprise of stocks which are:-
a) Undervalued with potential to deliver superior risk-adjusted return in the long-term,
b) Trading at a deflated price due to market exaggeration and displaying lower PB & PE or higher dividend yields,
c) Having hidden assets (as per the fund house's own perception) that the market has not spotted yet, with a turnaround potential.
4. "Contra" funds will mainly be comprising of stocks performing against the general market - vice versa of bullish or bearish - and staying long in them till the "herd mentality" reverses, with the expectation of benefits in the bargain.
5. "Focused" funds will be concentrated in a maximum of 30 stocks where the fund house feels that there are better prospects of delivering above average profits and growth in a "named" specific market cap (multi, large, mid, or small) category, with lesser emphasis on their existing market prices.
6. Risk awareness about these funds will, therefore, be handy while investing in them:-
a) A "Value" fund may be lesser vulnerable with a lower downside, being comprised of currently out-of-favour stocks, with lesser buyer expectations, but could have a "value trap" risk where a fund manager may believe it is a good valuation pick, but its price may continue to drift lower, with anticipated turnover never happening, forcing him to bail out at a loss.
b) It may also tend to under-perform in rising markets (when investors are willing to pay a premium for future growth) since these funds won’t be investing in high-growth and high-valuation stocks.
c) Also, price discovery in these stocks could take a longer time, testing the patience of the fund manager as well as the investor, at times.
7. A "Contra" fund will have higher risk than the conventional diversified fund, and may require "timing" of entry and exit (as they would be mainly invested in stocks of under-performing cyclical sectors) depending on improving (or deteriorating) prospects of their products, services and pricing power.
8. A "Focused" fund will invest in a limited number of 30 stocks, mostly of higher valuations due to future growth prospects, and any setback in these companies or any below-par earnings could impact their stock prices, hence the fund's NAV, considerably.
9. Overall, even for an aggressive investor, inclusion of these funds should be limited to his own risk appetite for safeguarding against volatile over-exposure and erosion.
10. The remaining portfolio should continue to comprise of diversified mutual funds belonging to other categories, while ignoring thematic / sectoral funds as they are most risky for long-term investment.