Things you should know about newly created mutual fund categories

The recategorization of mutual funds has created many new fund categories. Under the equity funds, the schemes following contra, value and focused strategy have been categorised differently.

Let's look at these categories and explore them

Value Fund- These funds follow value investing strategy. These funds seek to invest in the securities which are undervalued by the market and are fundamentally strong. The fund manager of these schemes bet on the sectors or stocks which have taken a major beating with the market movement and are out of the focus for the time being. This type of fund is for the investor who has the patience to hold the scheme for the longer term. One should not chase returns in a shorter time span in these funds as in the market boom these funds usually underperform.

Contra Funds- Contra funds are the funds which follow contrarian investing strategy. These funds invest in the securities which are cheap in valuations and rich on the balance sheet front. The fund managers of these schemes bet against the market trends. As per SEBI's circular for mutual fund categorisation and reclassification, fund house can keep only one scheme out of value and contra fund.

Focused Funds- These funds hold small number of stocks in the portfolio. These funds follow a concentrated portfolio and invest into around 30 stocks. With this concentrated portfolio these funds provides good returns if the strategy plays well.

Being a mutual fund investors one should always consider their risk appetite and the investment style of the fund before investing into the particular mutual fund scheme.