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Home > Business > Special


All about Lotus India Contra Fund

March 08, 2007

  • Type
  • Open-ended Equity: Diversified
  • Benchmark
  • BSE 500
  • Min. Investment
  • Rs 5,000
  • Face Value
  • Rs 10
  • Entry Load
  • 2.25%*
  • Exit Load
  • 1.00% (Max)**
  • Issue Opens
  • February 15, 2007
  • Issue Closes
  • March 15, 2007
    * No entry load for investment of Rs. 50 m or more.
    ** An exit load of 1% will be charged if redemption is made within 6 months from the date of allotment. If redeemed after 6 months and on or before 1-Yr, it will be 0.60%. If redeemed after 1 year, no exit load will be charged. For redemption, where the initial purchase is equal to or greater than Rs. 50 m, there will be no exit load.

     Investment Objective*

    The investment objective of the Scheme is to generate capital appreciation through investment in equity and equity related instruments. The Scheme will seek to generate capital appreciation through means of contrarian investing. However, there can be no assurance that the investment objective of the Scheme will be realised.
    *Source: Offer document

     Is this fund for you?

    Typically, contra funds invest in fundamentally sound companies, which are currently out of favour but have the potential to clock above-average growth in future. This style of investment draws from the value style of investing. Simply put, it involves identifying fundamentally sound stocks, which are trading at a discount to their fair value. Usually the fund manager buys these stocks and holds them until the mis-pricing in the stock value gets corrected.

    Lotus India Contra Fund (LICF), an open-ended diversified equity fund will adopt the contrarian style of investing for generating capital appreciation. This style of investing works particularly well during the bear phase in stock markets when the fund manager has plenty of investment opportunities that qualify as contrarian picks. During a stock market rally (like the one we have been witnessing for nearly four years now), contrarian picks are a little hard to come by.

    Investors must appreciate that the contra style of investing requires some patience and forbearance on their part before they see results. If the fund manager does indeed identify investment opportunities earlier on and is willing to wait patiently until the stock/theme unlocks its potential value, then the 3-Yr time frame that we consider mandatory for equity investing, might not prove sufficient. So investors in contra/value style funds must aim for a longer investment horizon (at least 5 years).

    For investors looking at investing in contra/value style funds we recommend DSP ML Equity Fund, a well-established value style with an impressive track record over the long-term (38.6% CARG over 3-Yr, 42.6% CAGR over 5-Yr). Since Lotus India Mutual Fund has yet to make its presence felt in the domestic fund management industry (it launched its first equity fund last year), investors should first evaluate its investment approach and processes over a 3-5 year time frame and across market cycles (particularly the downturns) before committing money to the fund house.

  • Read what we wrote about the Lotus India Tax Plan NFO

  •  Portfolio Strategy

    LICF is mandated to invest between 65%-100% of its assets in equity and related instruments. It has the flexibility to invest upto 35% of assets in debt instruments.

    InstrumentsAllocation Range
    Equity and equity related instruments65-100%
    Debt & money market instruments0% - 35%

    The fund proposes to pursue the contrarian style of investing. It will scout for companies that are either out of favour or are under-valued.

     Fund Manager Profile

    Tridib Pathak, (CA) is Chief Investment Officer - Equity at Lotus India Asset Management Company Pvt. Ltd. He has over 16 years of experience in equity research and fund management. Before joining Lotus India Mutual Fund, he was associated with Chola Mutual Fund and Principal Mutual Fund among other firms.

     Outlook

    LICF offers investors an opportunity to clock higher risk-adjusted returns by investing in stocks that are at a discount to their book values (i.e. value style investing). Since typical value stocks witness lower volatility (vis-�-vis typical growth stocks), there is likelihood that the fund's performance will see lower volatility over the long-term when compared to its growth style counterparts.

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