Best Contra Funds Sorted by Last 3 Year Returns
|
Fund Name
|
AUM
 |
3Y Returns
|
Ratings
|
|
|---|---|---|---|---|
SBI Contra Fund Equity Contra Fund |
₹40,486.05 Cr. |
25.1% |
||
|
SBI Contra Fund Direct Plan IDCW Payout Equity Contra Fund |
₹40,486.05 Cr. |
25.1% |
||
|
SBI Contra Fund Direct Plan IDCW Reinvestment Equity Contra Fund |
₹40,486.05 Cr. |
25.1% |
||
Kotak India EQ Contra Fund Equity Contra Fund |
₹3,935.46 Cr. |
24.14% |
||
|
Kotak India EQ Contra Fund Payout of IDCW Direct Payout Equity Contra Fund |
₹3,935.46 Cr. |
24.14% |
||
Invesco India Contra Fund Equity Contra Fund |
₹17,717.85 Cr. |
22.96% |
||
|
Invesco India Contra Fund Direct Plan IDCW (Payout / Payout) Equity Contra Fund |
₹17,717.85 Cr. |
22.95% |
||
|
Invesco India Contra Fund Direct Plan IDCW (Reinvestment / Reinvestment) Equity Contra Fund |
₹17,717.85 Cr. |
22.95% |
About Contra Funds
Contra funds are categorised under equity mutual funds and they primarily invest in equities by having a contrarian view of the market. The SEBI guidelines dictate that contra funds must invest at least 65% of total assets in equity and equity-linked securities. In other words, Contra fund managers place their bet against the current market cycle trends.
They apply a strategy of investing in undervalued stocks whose fundamentals are strong and ones which are not preferred by the current market conditions. When such stocks are available at a lower price, contra funds would benefit from any sharp rise in the prices of these stocks, often observed during bullish market runs.
How Do Contra Funds Work?
Contra mutual funds fall within the category of equity-oriented funds and they mainly invest in the equity of companies. They are referred to as contra funds as they have a view of the market that is predominantly contradictory in nature. In other words, contra funds invest capital in such a way that investment is made contrary to present trends in the market.
The stocks invested in may not be the currently preferred stocks in the market, but the fund works on the premise that buying such stocks at a low price may yield returns in case there is a sharp rise in the stock’s price in the future, possibly when markets turn bullish. According to SEBI (the Securities and Exchange Board of India) regulations, contra funds must invest a minimum of 65% of total capital in equities.
Features of Contra Funds
- Identification of Undervalued Stocks: Contra funds specialise in identifying ignored equity investment opportunities in undervalued stocks and invest in them for long-term gains.
- Good Returns at Lower Cost: Since stocks having sound fundamentals are already operating at a low price compared to their peers, it makes it easier for the fund manager to purchase them at a lower cost. This in turn increases the chances of garnering positive returns as they have a lesser downside risk of bearing losses when the market collapses.
- Hedging: Contra funds have a lesser downside risk of bearing losses in comparison with large-cap, multi-cap, mid-cap and other equity funds regardless of the market fall. This is only possible due to the fact that the stocks in a contra fund trade at discounts already and this acts as a hedge against market corrections during overvalued market conditions.
Advantages of Contra Funds
Courtesy of their contrarian approach to investing, contra funds come with a few advantages.
- Underrated stocks: Contra funds enable investors to tap into ignored and underrated value stocks which are often overlooked by most investors in the market.
- Outperform Market: No investors like businesses to have issues for longer periods of time. Investors purchase value stocks when the business is going through a rough phase and as time passes issues get resolved, they experience strong returns and outperformance of the overall market from their investments. They experience strong rallies when their temporary problems are solved.
- Diversification Tools: When compared to their peers, some stocks have similar fundamentals and operate at a lower price with a lesser downside risk of bearing losses when the market falls. Contra funds can be an excellent diversification tool as they have a weak correlation with prevailing market conditions which is well observed during market corrections and crashes, allowing investors to explore low-priced stocks.
Risks of Contra Funds
- Opportunity Cost: Contra funds can experience no profits for extended periods. When a contra fund identifies a business that is undergoing temporary troubles and invests in them for a long-term period of say 5 years, only to experience that the problems are not getting solved within due time, then the fund managers are left with no choice than to exit their investment in pursuit of better opportunities. During situations like these, investments may be exited without a profit, leading to significant opportunity cost.
- Possible Losses: Contra funds are all about betting on an underperforming stock in the hope that it will perform better over a long period of time. If a stock lives up to the investor’s expectation then a higher return could be possible and if they don’t then investors need to be ready to book losses. It could be wise to not hold more than 10% of one’s investment portfolio in contra funds.
- Fund Manager’s expertise: The expertise of a fund manager plays a key role in the performance of the mutual fund scheme since the stock choice is purely dependent on the fund manager’s research, analysis, and assessment of stocks. Before investing, it is imperative that investors must ensure that they understand the performance of the fund manager.
Factors To Consider Before Investing in Contra Mutual Funds
Before you contemplate investment in a contra mutual fund, you may want to consider the historical performance of the funds you are opting to invest in. Having said this, there are other factors to consider before you invest:
- In the style of contrarian investing, the performance of the overall market may have no bearing on the stocks you invest in. In a contra mutual fund, the performance of individual stocks matters more. Consequently, before you invest, you may want to evaluate the equity of the companies of a particular fund, bearing in mind their fundamentals and potential for future gains.
- Consider that mutual funds come with risks, and contra funds that invest in undervalued equities may come with certain uncertainties. Due to these factors, it could be favourable to invest a smaller portion in such funds.
- While investing in a contra fund, the fund manager is crucial because the stocks selected for the fund are dependent on the fund manager’s assessment of potential gains in the long term. You may consider doing some research on the fund manager before you invest in a contra fund.
- Before you invest in a contra fund, it is vital that you think about your own risk profile, horizon for investment, financial requirements, and investment goals. Investment is all about the way in which investment matches your own style and gives you the returns you want in a particular time frame.
Who Should Invest in Contra Mutual Funds?
Contra funds are beneficial for patient investors who do not distress sell when there is bad news to cut potential losses. In the long run, contra fund investments put investors out of trouble and perform well. Investors who have the ability to sit tight, control their nerves and have patience till market conditions improve and stocks realise their true value will enjoy the sweet results of contra funds.
Investors who understand stock fundamentals and market correction mechanisms related to undervalued stocks can put their money in contra funds. The following types of investors should definitely consider investing in these funds:
- People who want to limit their downside risk during overvalued market conditions.
- People who like to remain invested till the stocks attain the expected value.
- Investors who are looking at an investment timeline of 5 to 7 years.
Contra funds could fetch you better returns than index funds, provided you as an investor are someone who does not get scared when businesses face sustained challenges.
Taxability of Contra Mutual Funds
- Contra funds are a part of the equity mutual funds category and income derived from contra funds is taxed like any other equity fund.
- Dividend taxation – Dividends earned on Contra funds are added to the investor’s taxable income and taxed at the rate as per the income tax slab. There is also a 10% TDS on dividend amount exceeding Rs. 5000 in a financial year.
- Capital gains taxation – Capital gains tax is calculated based on the period of holding the fund.
- Short-term capital gains from the sale of fund units within a one-year holding period are taxable at 15%. This is irrespective of an investor’s income tax slab rate.
- Long-term capital gains of a maximum of Rs. 1 lakh through the sale of fund units after the completion of one year holding period are tax-free. Any additional gains are taxed at 15% with no indexation benefit.
How to invest in Contra Funds?
Investing in the contra Mutual Fund is hassle-free when done through your Angel One account. You just have to follow these simple steps:
Step 1: Log in to your Angel One account.
Note: In case you do not have an account with Angel One, you can open a demat account with us in under a few minutes by submitting the necessary documents.
Step 2: Determine a contra fund that suits your needs and risk profile. You can learn more about each contra fund on the Angel One app. Things to consider at this stage are:
- Search for the fund you want to invest in.
- Analyse the fund’s past performance, tax incidence, and the sectors and companies it invests in. You can also calculate the potential returns using the calculator.
- Evaluate the fund’s level of risk, its ratings and expense ratio.
Step 3: Once you finalise the contra fund(s) you want to invest in, open your Angel One account, go to the Mutual Funds section, and look for it.
- Decide whether you want to invest via SIP or make a one-time investment
- Decide your monthly SIP date. Now, enter the amount you want to invest and choose the payment mode.
- After placing the order, you can create an AutoPay to make hassle-free future instalments in case of SIP investments.
Top 3 Contra Funds to Invest in India
| Name | AUM (Rs. in crores) | Minimum lumpsum (Rs.) | CAGR 3Y (%) | CAGR 5Y (%) |
| SBI Contra Fund | 8979.10 | 5000 | 43.87 | 15.28 |
| Kotak India EQ Contra Fund | 1467.20 | 5000 | 29.40 | 13.25 |
| Invesco India Contra Fund | 9390.66 | 1000 | 26.93 | 11.17 |
The above-mentioned top funds are for informational purposes only and are not recommendations. The funds are based on a 5-yr CAGR, which is subject to change frequently. Check out real-time data on Angel One.
SBI Contra Fund
- This fund is being managed by Dinesh Balachandran since May 2018. As on March 31, 2023, the fund has an AUM of Rs. 8979.10 crore and the minimum investment value is Rs. 5000. The expense ratio of the fund is 0.90% under direct investment mode and there is no exit load if redeemed or switched out after one year from the date of allotment.
Kotak India EQ Contra Fund
- This fund is being managed by Shibani Kurian since May 2019. As on March 31, 2023, the fund has an AUM of Rs. 1467.20 crore and the minimum investment value is Rs. 5000. The expense ratio of the fund is 0.81% under direct investment mode and there is no exit load if redeemed after ninety days from the date of allotment.
Invesco India Contra Fund
- This fund is being managed by Taher Badshash since January 2017. As on March 31, 2023, the fund has an AUM of Rs. 9390.66 crore and the minimum investment value is Rs. 1000. The expense ratio of the fund is 0.61% under direct investment mode and there is no exit load if redeemed or switched out after one year from the date of allotment.
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