Contra Mutual Funds

Fund categories

Fund Name
Kotak Contra Fund - Direct (G) Contra Fund \| Equity	9.64%	₹100	₹4,921.24	Invest
Invesco India Contra Fund - Direct (G) Contra Fund \| Equity	7.67%	₹1,000	₹20,173.03	Invest
SBI Contra Fund - Direct (G) Contra Fund \| Equity	7.59%	₹5,000	₹49,218.42	Invest

Kotak Contra Fund - Direct (G)

Equity | Contra Fund

1Y returns

9.64%

Min. Invest

₹100

AUM

₹4,921.24 Cr

Invesco India Contra Fund - Direct (G)

Equity | Contra Fund

1Y returns

7.67%

Min. Invest

₹1,000

AUM

₹20,173.03 Cr

SBI Contra Fund - Direct (G)

Equity | Contra Fund

1Y returns

7.59%

Min. Invest

₹5,000

AUM

₹49,218.42 Cr

What Are Contra Mutual Funds?

These mutual funds are investment vehicles that follow a contrarian investment strategy. They invest in stocks or sectors that are currently underperforming or out of favor with the market, believing that these stocks will eventually rebound. Fund managers look for undervalued assets with strong fundamentals, going against prevailing market sentiment.

The goal is to capitalize on potential turnarounds and market corrections. They do this to achieve higher returns when the overlooked investments regain popularity. This approach requires careful analysis and a long run perspective.

Characteristics of Contra Funds

Contra funds follow a contrarian investment strategy, meaning they invest in stocks that are currently out of favor but have strong growth potential. Here are some key characteristics:

Contrarian Approach

Contra funds invest in undervalued or out-of-favour stocks, going against market trends. Managers seek opportunities in neglected sectors or companies, believing in their potential for future growth.

Research-Intensive Strategy

Fund managers do in-depth analysis to find stocks with strong fundamentals despite their unpopularity. This requires deep market knowledge and the ability to spot hidden potential in overlooked companies.

High-Yield Potential

Through investing in undervalued stocks, contra funds aim to make significant gains. When neglected stocks regain popularity, they may even experience rapid price appreciation.

Higher Risk Profile

Contra funds can be more volatile than traditional mutual funds due to their unconventional strategy. But, success depends on the manager's ability to identify opportunities and market shifts.

How do Contra Mutual Funds Work?

Contra fund schemes work by adopting a contrarian investment strategy that goes against prevailing market trends. Fund managers actively seek out stocks that are currently unpopular or undervalued by the market. However, they choose the ones they believe have strong fundamentals and potential for future growth.

The process begins with extensive research and analysis of companies that are temporarily not doing well. Managers look for signs of potential turnaround, such as strong balance sheets or new management.

Once identified, these stocks are purchased at relatively low prices. The fund then holds these positions, often for extended periods, waiting for the market to recognize the company's value. As market sentiment shifts and other investors begin to see the potential in these stocks, their prices typically rise, generating profits for the fund.

This approach requires patience, as it may take time for the market to recognize the value in these underappreciated stocks. These funds also typically maintain a diversified portfolio to manage risk, as not all contrarian bets will pay off.

Why Should I Invest in Contra Funds?

Investing in contra funds can be a strategic move for those looking to capitalize on market inefficiencies and out-of-favor stocks. Here are some key reasons to invest -

Potential for High Returns

The best contra mutual funds can offer a lot of gains by investing in undervalued stocks before market sentiment shifts. When these overlooked companies get back up, their stock prices can rise dramatically, benefiting investors.

Portfolio Diversification

These funds often invest in sectors or stocks that other funds might avoid. They do this while also providing diversification benefits to your overall investment portfolio. Plus, these funds can potentially reduce risk through exposure to different market segments.

Capitalizing on Market Inefficiencies

These funds exploit market inefficiencies by identifying mispriced stocks. This strategy can lead to profitable opportunities that more conventional investment approaches might miss, potentially enhancing overall portfolio performance.

Long-Term Growth Prospects

Contra fund schemes focus on companies with strong fundamentals despite current unpopularity. This approach can uncover stocks with excellent long-term growth potential, offering investors the chance for sustained returns over time.

Factors To Consider When Investing In The Best Contra Mutual Fund Schemes.

Investing in these mutual fund schemes requires careful analysis to maximize potential returns and manage risks effectively. Here are some key factors to consider when selecting the best contra funds:

Fund Manager's Expertise: Assess the experience and track record of the fund manager in implementing contrarian strategies.

Fund's Performance History: Evaluate the fund's long-term performance, especially during different market cycles.

Risk Tolerance: Understand that the best contra funds can be more volatile than traditional funds due to their unconventional approach.

Investment Horizon: Ensure that you have a long-term investment outlook, as contrarian strategies often take time to yield results.

Risks Associated with The Best Contra Mutual Fund Schemes

These schemes carry several risks due to their unconventional investment approach. Market risk is significant as these funds invest in out-of-favour stocks that may take longer to appreciate or might not recover at all. Concentration risk can be high if the fund over-invests in particular sectors or stocks. Liquidity risk exists when investing in less popular or smaller companies.

There is also a substantial reliance on the fund manager's skill to identify opportunities and manage higher risks. Even timing can count as a risk, as it's challenging to predict when market sentiment will shift. Additionally, these funds may underperform during bull markets when their contrarian picks are out of sync with broader market trends.

Tax Rules for These Types of Mutual Funds

Taxation of these mutual funds follows the same rules as other equity-oriented mutual funds in India. If held for less than one year, gains are subject to Short Term Capital Gains (STCG) tax at 15%. For holdings over one year, Long Term Capital Gains (LTCG) tax applies at 10% for gains exceeding ₹1 lakh for each financial year. Dividends from these funds are taxable in the hands of investors at their applicable income tax slab rates.

FAQ’s

Who should invest in Contra Mutual Funds?

Long term investors with high risk tolerance, long term investment horizon, and belief in contrarian investments. They are also suitable for those seeking portfolio diversification.

Are contra funds risky?

Yes, these equity funds carry higher risk due to their unconventional approach. They invest in out-of-favor stocks, which may take time to appreciate or potentially fail.

Where are contra funds invested?

These funds invest in undervalued or unpopular stocks across various sectors. They focus on companies with strong fundamentals despite current market sentiment or temporary setbacks.

Are contra funds rewarding investments?

They can be rewarding if the fund manager's contrarian bets pay off. However, returns can be volatile and may underperform in bull markets.

What kind of returns can I earn from Contra mutual funds?

Returns vary widely based on market conditions and fund performance. Historically, some of these funds have outperformed benchmarks, but past performance doesn't guarantee future results.

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