Value and contra investing
Two styles that buy what the market prices low or has turned away from, and SEBI's two fund categories
Index figures as on 31 August 2026
Verified 12 October 2026
For training and education only. Not investment advice.
Trainer notes
Ask the room: a share has fallen from ₹500 to ₹300. What does the fall tell you? Collect answers and reasons. Most will rest on the fall alone. Keep them for slide 6.
Value and contra investors both look at shares the market is not favouring. They differ in what they check first.
A value investor starts from price against earnings or assets. A contra investor starts from opinion: a company or sector most investors have turned away from.
Trainer notes
These are working descriptions, not legal definitions. SEBI's categories say only that a value fund follows 'a value investment strategy' and a contra fund 'a contrarian investment strategy'. Each scheme's information document says what its manager means by the words. In practice the two styles overlap a good deal.
Four terms to know first
Value investing
Buying shares whose price is low against the company's earnings, net worth, sales or dividends.
Contra investing
Buying companies or sectors that are out of favour, on the view that the general opinion is too gloomy.
Intrinsic value
An investor's own estimate of what a business is worth. It is an estimate; two analysts can differ widely.
Value trap
A share that looks low-priced on ratios and stays low, because its profits keep shrinking.
Take-away: Growth investing is the usual contrast: a higher price against today's profit for faster expected growth.
Trainer notes
Contra is short for contrarian. None of the four terms is defined in SEBI's rules; they are the everyday language of the subject. P/E, P/B and dividend yield are covered in the 'P/E, PEG and P/B' deck; use the same definitions here.
What a value screen sees
TWO COMPANIES
Company A: price ₹200, earnings per share ₹20, book value per share ₹160.
Company B: price ₹600, earnings per share ₹20, book value per share ₹100.
- P/E of A = 200 ÷ 20 = 10. P/E of B = 600 ÷ 20 = 30.
- P/B of A = 200 ÷ 160 = 1.25. P/B of B = 600 ÷ 100 = 6.
- On both ratios A is priced lower against what it earns and owns. A value screen would pick up A and pass over B.
- The screen does not say why. A's profit may be about to fall, or B's may be growing fast. That is the manager's work after the screen.
Result: A low ratio is where a value investor starts looking. It is not the conclusion.
Illustration with two invented companies and assumed figures. Not a view on any company.
Trainer notes
Both companies earn the same ₹20 a share; only the price and the net worth differ. Do not let the room call A the better choice or say it is priced right or wrong. The ratio records what is being paid, not whether it is justified.
How one index measures value
The Nifty500 Value 50 picks 50 companies from the Nifty 500 by a 'value' score built on four measures.
- E/P
Earnings to price
Earnings per share ÷ share price. It is the P/E turned upside down.
- B/P
Book to price
Book value per share ÷ share price. It is the P/B turned upside down.
- S/P
Sales to price
Sales per share ÷ share price.
- DY
Dividend yield
Dividend per share ÷ share price.
Source: NSE Indices, Nifty500 Value 50 factsheet (measures and index description).
Trainer notes
With price at the bottom, a higher figure on each measure means a lower price against that item. The index is rebalanced twice a year. An actively managed value fund is not bound by these four measures; its manager may use others, such as cash flow or an estimate of intrinsic value. For Company A on slide 4: E/P = 20 ÷ 200 = 10% and B/P = 160 ÷ 200 = 0.80.
What a fall does and does not tell you
ONE FALLEN SHARE
A share traded at ₹500 two years ago.
After two years of weak results it trades at ₹300.
A contra investor is studying it.
- The fall so far: (500 − 300) ÷ 500 = 40%.
- Back to ₹500 from ₹300 needs a rise of (500 − 300) ÷ 300 = 66.67%.
- If it falls to ₹240, a buyer at ₹300 loses (300 − 240) ÷ 300 = 20%.
- The fall says the share is out of favour. It does not say whether the reasons are temporary or lasting.
Result: A fallen price is a reason to study a company. It is not evidence that the price will recover.
Illustration with an invented share and assumed prices. Not a forecast.
Trainer notes
Return to the opening question. The contra manager's work is to judge whether the bad news is already more than reflected in the price, and that judgement can be wrong or early by years. Note the arithmetic of losses: a 40% fall needs a 66.67% rise to recover.
What SEBI's categories require
The label and the 80% minimum are fixed by SEBI. The method is left to the fund manager.
| Value Fund | Contra Fund | |
|---|---|---|
| Strategy the scheme follows | A value investment strategy | A contrarian investment strategy |
| Minimum in equity and equity-related instruments | 80% of total assets | 80% of total assets |
| Can one fund house offer both? | Yes, if the portfolios of the two schemes overlap by no more than 50% | Yes, on the same condition |
Source: SEBI Master Circular for Mutual Funds, 20 March 2026, paragraph 3.8.1 (drawing on SEBI's circular of 26 February 2026).
Trainer notes
SEBI does not define 'value' or 'contrarian'. The scheme information document sets out how the manager applies the strategy, and that is the document to read. The overlap is worked out each quarter as the average of the daily overlap figures. The remaining 20% of assets may go into other permitted instruments.
How portfolio overlap is worked out
TWO INVENTED SCHEMES
Weights in Scheme V and Scheme C:
Share 1: 12% and 8%. Share 2: 10% and 15%. Share 3: 6% and 6%.
No other share is held by both.
- Take only the shares that both schemes hold. A share held by one scheme alone counts as zero.
- For each common share take the smaller of its two weights: 8% for Share 1, 10% for Share 2, 6% for Share 3.
- Add them up: 8 + 10 + 6 = 24%. That is the portfolio overlap.
- 24% is within SEBI's ceiling of 50% for a value fund and a contra fund of one fund house.
Result: Overlap = the sum, over shares held by both schemes, of the smaller of the two weights.
Method: SEBI Master Circular for Mutual Funds, 20 March 2026, Annexure 1A. Schemes and weights are invented.
Trainer notes
A weight is the investment in a share as a percentage of the scheme's assets. The check is done share by share (by ISIN, the code that identifies a security). The rule exists so that two schemes with different labels are different portfolios in fact. It compares two schemes of one fund house; it says nothing about how alike two fund houses' schemes are.
Where things stand
Industry figures as on 31 August 2026 (AMFI) and index ratios on the same date (NSE Indices).
- VALUE FUNDS
- 23Schemes. Net assets ₹1,43,761 crore in 49.40 lakh folios.
- CONTRA FUNDS
- 5Schemes. Net assets ₹75,812 crore in 41.57 lakh folios.
- P/E, VALUE 50 INDEX
- 10.42Nifty500 Value 50 on 31 Aug 2026. P/B 1.34, dividend yield 1.98%.
- P/E, NIFTY 500
- 22.73Its parent index on 31 Aug 2026. P/B 3.27, dividend yield 0.95%.
Sources: AMFI Monthly Report, August 2026; NSE Indices daily index file for 31 August 2026.
Trainer notes
The value index shows a lower P/E and P/B and a higher dividend yield than its parent because of how its 50 companies are chosen. That describes the selection rule, not its price or future results. A folio is an investor's account with a fund house. AMFI's September report is out (24 value, 5 contra schemes); refresh monthly.
If you learnt this from older material
SEBI's October 2017 rules for these two categories were changed in February 2026.
What older decks say
- Both categories began in October 2017.
- The equity floor was 65% of assets.
- After 2017: a fund house may offer value or contra, not both.
What holds now
- SEBI's circular of 26 February 2026 sets the rules.
- At least 80% in equity; the 2017 floor was 65%.
- Both may be offered if portfolio overlap is 50% or less.
Sources: SEBI circular of 6 October 2017; SEBI Master Circular for Mutual Funds, 20 March 2026, paragraph 3.8.1.
Trainer notes
The October 2017 circular created the categories, set the minimum at 65% and allowed 'either Value fund or Contra fund'. SEBI's circular of 26 February 2026 raised the minimum to 80% and allowed both, subject to the overlap ceiling. From 2017 until then a fund house had to pick one of the two.
Four things people get wrong
Misconception'A low P/E makes it a value share.'
What is trueA ratio can be low because profit is expected to fall. Value investors try to tell a low price from a shrinking business.
Misconception'Contra means buying the fallers.'
What is trueA fall is only the starting point. The manager still has to judge whether the bad news is temporary, and can be wrong.
Misconception'These styles pay off in time.'
What is trueEither may lag the broad market for a long time. Past results of a style assure nothing about the future.
Misconception'The label tells me the portfolio.'
What is trueSEBI fixes the category and the 80% floor. What counts as value or contrarian is set out in each scheme's document.
Trainer notes
On the third point, do not quote return figures for either style or suggest that a lean stretch is a reason to buy. On the fourth, two value funds can hold very different shares; the scheme information document and the monthly portfolio show what a scheme holds.
Check yourself
Question 1: A share trades at ₹150 with earnings per share of ₹15 and book value per share of ₹120. What are its P/E and P/B, and what can a value screen not tell you about it?
Answer: P/E = 150 ÷ 15 = 10. P/B = 150 ÷ 120 = 1.25. The screen cannot say why the ratios are low, or whether the profit will hold.Question 2: Two schemes of one fund house both hold Share X (10% and 4%) and Share Y (5% and 9%), and nothing else in common. What is their portfolio overlap?
Answer: Take the smaller weight for each common share: 4% + 5% = 9%. That is within the 50% ceiling for a value fund and a contra fund.Question 3: A client says: 'This sector has crashed, so a contra fund must do well now.' What would you explain?
Answer: A fall shows a sector is out of favour, not that it will recover. A contra fund follows a contrarian strategy with at least 80% in equity; its manager's judgement can be wrong or early. Returns are not assured.
Sources and disclaimer
Sources for the figures in this explainer
- Value Fund and Contra Fund characteristics, 80% minimum, both permitted with overlap up to 50%: SEBI Master Circular for Mutual Funds, 20 March 2026, paragraph 3.8.1.
- Method for portfolio overlap: the same Master Circular, Annexure 1A.
- Categories created, 65% minimum, 'either Value fund or Contra fund': SEBI circular SEBI/HO/IMD/DF3/CIR/P/2017/114, 6 October 2017.
- Schemes, folios and net assets of value and contra funds as on 31 August 2026: AMFI Monthly Report, August 2026.
- Nifty 500 and Nifty500 Value 50 P/E, P/B and dividend yield on 31 August 2026: NSE Indices daily index file. Value score measures: NSE Indices factsheet for the index.
- Companies A and B, the fallen share, Schemes V and C and Shares 1, 2, 3, X and Y are invented for illustration. They do not refer to any real company or scheme.
This material is for training and investor education only. It is not investment, tax or legal advice and is not a recommendation to buy, sell or hold any security or scheme. Examples use assumed figures unless a source and date are shown. Mutual fund investments are subject to market risks; read all scheme related documents carefully. Trustner Asset Services Pvt. Ltd. is an AMFI-registered Mutual Fund Distributor (ARN-286886).