Best Contra Funds: Meaning, Benefits, Taxation and More!
Contra funds are specialised equity mutual funds that take a contrarian approach to investing, often targeting undervalued stocks with the potential for future appreciation. The contra fund managers look for undervalued stocks with strong fundamentals that aren’t favoured by the market. In this blog, we will explore the top-performing contra funds while also delving deeper into understanding the meaning of contra funds, along with benefits, drawbacks, taxation and how to invest in the best contra funds in India.
Top Contra Funds to Invest in India Based on 5Y CAGR
Discover promising investment opportunities with our carefully curated top contra funds list for 2024 below.
| Fund Name | Market Cap (in cr) | Expense Ratio (%) | 1Y Returns | 3Y CAGR | 5Y CAGR |
|---|---|---|---|---|---|
| SBI Contra Fund | ₹26,776.87 | 0.63 | 48.68% | 29.65% | 28.64 % |
| Invesco India Contra Fund | ₹13,903.49 | 0.54 | 47.11% | 22.23% | 21.76% |
| Kotak India EQ Contra Fund | ₹2,961.62 | 0.61 | 52.67% | 25.66% | 22.98% |
Disclaimer: Please note that the above list is for educational purposes only, and is not recommendatory. Please do your own research or consult your financial advisor before investing.
Note: The data on the top contra funds in India is from 20th May 2024 and is derived from the Tickertape Mutual Funds Screener.
🚀 Pro Tip: You can use Tickertape’s Mutual Fund Screener to research and evaluate funds with over 50+ pre-loaded filters and parameters.
Top Contra Funds to Invest in India: Brief Overview
SBI Contra Fund
SBI Contra Direct Plan-Growth is a contra mutual fund scheme from SBI Mutual Fund. The fund has an AUM of Rs. 26,776.87 cr. as of 20th May 2024. Since inception, the fund’s annualised performance has been 17.84%. As per this fund composition, large-cap makes up for the majority of the fund at 38.68% and the most significant allocation towards Private Banks at 10.51%. The fund’s expense ratio is 0.63% while the 5-yr CAGR is 26.64%.
Invesco India Contra Fund
Invesco India Contra Fund Direct-Growth is a contra mutual fund scheme from Invesco Mutual Fund. As of 20th May 2024, the AUM of Invesco India Contra MF is Rs. 13,903.49 cr. while the expense ratio is 0.54%. The fund’s annualised performance has been 19.63% since inception. The 5Y CAGR is 21.76%. Additionally, the fund has a standard deviation of 10.9% vs its category average of 11%.
Kotak India EQ Contra Fund
Founded in 2013, the Kotak India EQ Contra Fund Direct-Growth is a contra mutual fund scheme from Kotak Mahindra Mutual Fund. The fund’s annualised performance has been 18.22% since inception. As of 20th May 2024, the AUM of Kotak India EQ Contra MF is Rs. 2,961.62 cr. while the expense ratio is 0.61%. In terms of fund composition, the large-cap makes up for the majority of the fund at 66.18% along with the largest allocation towards Private Banks at 12.52%. At last, the 5Y CAGR of the fund is 22.98%.
What are Contra Funds?
Contra funds are equity mutual funds that invest against market trends. They focus on stocks that are currently underperforming or undervalued, believing that these stocks will eventually rebound and offer significant returns.
The core principle of these funds is to exploit temporary market inefficiencies. Thus, contra mfs aim to generate significant returns over time by capitalising on distorted asset values and purchasing stocks below their intrinsic value.
How Contra Mutual Funds Work?
Contra mutual funds operate by:
- Stock Selection: Fund managers pick stocks that are currently out of favour with the majority of investors but have strong fundamentals and are expected to perform well in the future.
- Market Analysis: They analyse market trends and investor sentiment to identify potential turnaround stories.
- Patience: Contra MFs require a longer time horizon, as it may take time for the market to recognise the value of the investments.
Features of Contra MFs
By adopting a contrarian investment strategy, they focus on investing in stocks that are currently underperforming or undervalued in the market. The key features of the equity contra funds include:
- Contrarian Approach: They go against the prevailing market trends by investing in stocks that most investors currently avoid.
- Focus on Value: The best contra mfs seek out stocks believed to be trading below their intrinsic value due to temporary issues or market overreactions.
- Long-term Perspective: These funds are designed for investors with a long-term investment horizon, as it may take time for the selected stocks to realise their potential and appreciation.
- Higher Risk & Reward Ratio: Contra MFs may carry a higher level of risk due to their investment in underperforming companies, but they also have the potential for higher returns if the fund manager’s bets pay off.
Advantages of Investing in the Best Contra Mutual Funds
The advantages of investing in the best contra funds include:
- Potential for High Returns: If the contrarian bets pay off, contra funds can offer significant returns.
- Diversification: They can add diversification to a portfolio by investing in stocks not favoured by the market.
- Expert Management: Managed by experienced fund managers with a deep understanding of market cycles and the ability to identify undervalued stocks.
How to Invest in Contra Mutual Funds?
Here are a few steps you can follow to invest in the best contra funds:
- Register online on your preferred mutual fund app or website.
- Select the contra mutual funds that you are interested in.
- Click on invest and choose the mode of investment i.e. SIP or Lumpsum.
- Provide your KYC details and complete the investment process.
However, if you’re confused about which stocks to pick, you can explore smallcases:
- smallcases are readymade portfolios of stocks/ETFs, that are based on a theme idea or strategy
- They’re created and managed by SEBI-registered experts
- smallcase.com offers over 200+ stock portfolios, created by 180+ managers
- Some of the popular smallcases among new investors are as follows:
Disclosures for aforementioned smallcases
Factors to Consider Before Investing in Contra Funds in India
You need to consider the following funds before investing in the best contra funds in India 2024:
- Fund Performance: Look at the past performance of the contra mf.
- Fund Manager’s Track Record: Evaluate the experience and track record of the fund manager.
- Investment Horizon: Ensure it aligns with your long-term investment goals.
- Expense Ratio: An AMC will impose certain fees or charges to efficiently oversee the fund. Thus, it is advisable to check the fund’s expense ratio so that you can get a correct estimate of your returns.
Who Should Invest in a Contra MFs?
Contra funds are suitable for the following investors:
- Risk-tolerant Investors: Those who can handle higher volatility and are willing to take on more risk.
- Long-term Investors: Ideal for individuals with a long-term investment horizon who can wait for stocks to realise their potential.
- Value Investors: Those who believe in the potential of undervalued stocks and are looking for investments that may not be currently popular but have the potential for future growth.
Risks Involved with Investing in Contra Funds
The risks associated with contra funds are:
- Market Timing Risk: There is a risk of misjudging market trends and the timing of stock rebounds.
- Volatility: Investments in underperforming stocks can lead to more volatility.
- Long-term Commitment: Investors need to have patience and a long-term investment horizon.
Taxation on Contra Funds
Contra mutual funds are equity-oriented funds and thus, they are taxed like any other equity mutual fund scheme. Dividends earned from contra mfs are taxable according to the investor’s respective slab rates. Let’s look at the following table to understand better about STCG and LTCG.
| Type of Capital Gains | Holding Period | Tax Rate | Tax Exemption Limit | Excess Tax Rate |
|---|---|---|---|---|
| Short-term Capital Gains | Less than 12 months | 15% | N/A | N/A |
| Long-term Capital Gains | Over 12 months | N/A | Rs. 1 Lakh | 10% without indexation |
To Wrap It Up…
Contra MFs can be a valuable addition to an investment portfolio for those who are willing to take on higher risk for the potential of higher returns, provided they have a long-term investment horizon and a contrarian investment philosophy. However, it is always worthwhile to take the help of a financial advisor and do your own research before investing.
Most Popular Mutual Funds:
As an investor to have a diversified mutual funds portfolio, you might also like to know more about these different types of funds for investing –
Frequently Asked Questions (FAQs) on Conta Funds
A contra fund is a type of mutual fund that potentially invests in the opposing forces with the market. This means these funds invest in stocks that are undervalued as opposed to well-performing stocks in the market.
Contra MFs may carry high risk due to their contrarian nature which might not be ideal for conservative investors.
Contra funds invest in stocks that are currently out of favour or undervalued but have the potential for future appreciation.
The choice between the best contra mutual funds and other mutual funds depends on individual risk tolerance, investment goals, and belief in the contrarian investment strategy.
Contra funds are thought to be high-risk investments due to their focus on undervalued and underperforming stocks.
