Retail investors prefer long-term stocks

There is a perceivable shift in the way retail investors now approach the stock market. They are willing to stay invested for three to five years stocks rather than making windfall gains, said a mutual fund head.

Addressing mediapersons on the launch of Chola Contra Fund, Sashi Krishnan, chief executive officer, Chola Mutual Fund, said that there is an increase in the number of retail investors preferring longer term stocks, and this is evident from the fact that the concept of contra fund is gaining popularity.

Krishnan said that, however, as investors tend to follow trends and short term events, the norm remains that the higher the price goes up, more the people want to invest.

"Contrarian investing focuses on investing in fundamentally sound companies that are overlooked by the market for their value to be discovered. Irrespective of whether the stock market is bullish or bearish, the contrarian investing would help investors diversify and create wealth over medium to long term," he added.

The other companies that have launched the contra fund are SBI Mutual Fund, DSP Merrill Lynch Mutual Fund and Kotak Mutual Fund.

He pointed out that during the bull run of stock market in 1999-2000, almost 65 per cent of the BSE 200 stocks underperformed. Two years later, these were stocks that had outperformed.

The opportunities for contra fund arise from negative short term news in a stock, low expectations in short term and stocks and sectors which have not been identified. The underlying risk is less as the prevailing price of the stocks bought are also low.

Chola Contra Fund will invest at least 65 per cent in equity and equity related instruments of companies using a contrarian strategy. The initial offer for subscription will open from January 17 to February 14, 2006. Chola Mutual Fund's asset under management is about Rs 1,600 crore with 16 schemes and 1.5 lakh investors.