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Best Contra Mutual Funds

Contra mutual funds are a specialised form of fund that takes advantage of an underperforming company or enterprise. These companies generally have immense potential for growth, but fail to capitalise on the same due to external factors. Here Contra is the shortened form of contrarian funds. The name is so given because such funds have a contrary market outlook.

Going against the flow can sometimes help accrue immense profits, which is why individuals often look to invest in the best contra mutual funds.

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List of Contra Mutual Funds in India

Fund NameCategoryRisk1Y ReturnsRatingFund Size(in Cr)
Kotak India EQ Contra FundEquityVery High11.1%5₹1,260
SBI Contra FundEquityVery High22.6%4₹4,491
Invesco India Contra FundEquityVery High9.8%4₹8,655
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Features of Contra Mutual Funds

Listed below are some features of the best contra mutual funds – 

Asset allocation: According to SEBI regulations, best contra mutual funds in 2022 must invest a minimum of 65% assets in equity-linked and equity instruments.

Risk-reward ratio: Contra funds carry a significant amount of risk since it invests in companies and businesses that are struggling to meet its potential. Fund managers extensively study all such businesses to assess whether they have optimal chances of growth. However, the prospect of earning a hefty profit is substantial.

Taxability

Long-term Capital Gains Tax: Equity-oriented mutual funds, like contra funds, have specific tax rates on long-term gains, i.e., gains from the sale of units held longer than a year. If the profit is limited to Rs.1 lakh, investors do not need to bear any taxes. However, a flat 15% tax is charged with no indexation benefit if it exceeds this amount.

Short-term Capital Gains Tax: These refer to taxes on earnings from the best contra mutual funds with an investment term of less than a year. One is liable to pay 15% of such earnings as taxes, irrespective of his/her income tax slab.

TDS: Dividend payouts up to Rs.5000 are tax-free. Any amount exceeding that is taxed @10%.

Who Are These Funds Suited For?

When looking for the best contra mutual funds, one must consider a few factors. These are – 

Investment horizon – An investor must determine whether his/her goals match the long-term commitment necessary to acquire sizable returns from contra funds. Individuals may want to hold such assets for at least five years or more for maximum benefits.

Risk appetite – Due to the volatile nature of these funds, the risk of losses is high. This volatility can also force certain investors to bail at an improper time, minimising their chances of acquiring considerable gains. Therefore, only investors that can ride out such difficulties related to contra funds stand to earn hefty profits.

Experienced investors – Individuals with an immense understanding of the various mutual funds are more likely to identify the best contra mutual funds. An investor with experience of 5-7 years would be able to pick funds with the most promising undervalued stocks in the market.

Patience is the key – Underperforming assets may take a significant amount of time to get back on track. Therefore, investors in these schemes need to possess considerable patience. Contra funds may not show measurable growth in a few months or even a couple of years, and perseverance is crucial.

Major Advantages

Here is a look at some advantages of investing in these top contra mutual funds – 

  • Unconventional investing – Instead of investing in common securities, contra mutual funds pick unconventional and underperforming assets. In the long run, such options have a much higher capacity of generating profits if external factors responsible for stopping a stock’s growth are resolved.
  • Acts as hedge funds – These mutual fund instruments can hedge against market corrections during a phase when this market is in an overvalued condition. Even though best contra mutual funds pose a risk on their own, they can also reduce the risk faced by investors under specific conditions.
  • Buy low and sell high – Since these stocks are underperforming while an investor buys them, they are priced on the lower end of the spectrum. With growth and realisation of its true potential, stock prices tend to increase, allowing investors to sell their assets when such prices reach their peak. This is how contra mutual funds promise immense returns to investors.
  • Lower downside risk – Contra fund’s risk is still minimal when compared to the lower downside risk posed by other large-cap, small-cap, and mid-cap equity funds. This is because contra fund portfolios always trade at a discounted rate when compared to their past valuations.

These are just a few of the reasons why seasoned investors should take advantage of the best contra mutual funds.

Let's have a closer look

Now let us jump and check about these top 10 mutual fund schemes.

Kotak India EQ Contra Fund Direct Growth

Fund Performance: The Kotak India EQ Contra Fund has given 15.95% annualized returns in the past three years and 14.57% in the last 5 years. The Kotak India EQ Contra Fund belongs to the Equity category of Kotak Mahindra Mutual Funds.

Minimum Investment Amount: The minimum amount required to invest in Kotak India EQ Contra Fund via lump sum is ₹5,000 and via SIP is ₹1,000.

Min Investment Amt₹5,000
AUM₹1,260Cr
1Y Returns11.1%

SBI Contra Direct Plan Growth

Fund Performance: The SBI Contra Fund has given 24.03% annualized returns in the past three years and 13.92% in the last 5 years. The SBI Contra Fund belongs to the Equity category of SBI Mutual Funds.

Minimum Investment Amount: The minimum amount required to invest in SBI Contra Fund via lump sum is ₹5,000 and via SIP is ₹500.

Min Investment Amt₹5,000
AUM₹4,491Cr
1Y Returns22.6%

Invesco India Contra Fund Direct Growth

Fund Performance: The Invesco India Contra Fund has given 16.78% annualized returns in the past three years and 13.75% in the last 5 years. The Invesco India Contra Fund belongs to the Equity category of Invesco Mutual Funds.

Minimum Investment Amount: The minimum amount required to invest in Invesco India Contra Fund via lump sum is ₹1,000 and via SIP is ₹500.

Min Investment Amt₹1,000
AUM₹8,655Cr
1Y Returns9.8%

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