New Delhi, Oct. 11 -- Fund houses are launching contra funds as several sectors face disruption amid global uncertainty. Bandhan Asset Management Company, ICICI Prudential AMC and Motilal Oswal AMC have recently launched contra funds. WhiteOak Capital AMC, a newer fund house, has also filed for one with Sebi.

Here is how contra funds work and what investors should consider before investing.

A contra fund buys stocks or sectors that the market has turned away from. These may have underperformed the broader market, trade below their historical valuations or simply be overlooked by investors. The fund bets that the market is too pessimistic and that the stock will be re-rated when the business recovers or sentiment improves.

This approach...