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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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Top 10 Contra Mutual Funds

Fund NameCategoryRisk1Y ReturnsRatingFund Size(in Cr)
Kotak Classic ContraEquityVery High58.0%5star1,169
SBI Contra FundEquityVery High82.5%4star2,974
Invesco India Contra FundEquityVery High56.5%4star8,411
View All Top 10 Contra Mutual Funds

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 2021 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: This fund has given 24.26% annualized returns in the last three years. In the last year, its returns were 57.96%. It has continually hit its benchmark in the Equity segment.

Why to invest: It is one of the most remarkable Equity mutual funds in India. This fund has constantly outperformed other similar funds, providing 57.96% returns in the last one year. Minimum lump sum investment amount required to invest in this scheme is ₹5,000. Minimum SIP investment amount required for this scheme is ₹1,000.

Min Investment Amt₹5,000
AUM1,169Cr
1Y Returns58.0%

SBI Contra Direct Plan Growth

Fund Performance: This fund has given 26.58% annualized returns in the last three years. In the last year, its returns were 82.54%. It has continually hit its benchmark in the Equity segment.

Why to invest: It is one of the most remarkable Equity mutual funds in India. This fund has constantly outperformed other similar funds, providing 82.54% returns in the last one year. Minimum lump sum investment amount required to invest in this scheme is ₹5,000. Minimum SIP investment amount required for this scheme is ₹500.

Min Investment Amt₹5,000
AUM2,974Cr
1Y Returns82.5%

Invesco India Contra Fund Direct Growth

Fund Performance: This fund has given 23.81% annualized returns in the last three years. In the last year, its returns were 56.5%. It has continually hit its benchmark in the Equity segment.

Why to invest: It is one of the most remarkable Equity mutual funds in India. This fund has constantly outperformed other similar funds, providing 56.5% returns in the last one year. Minimum lump sum investment amount required to invest in this scheme is ₹1,000. Minimum SIP investment amount required for this scheme is ₹500.

Min Investment Amt₹1,000
AUM8,411Cr
1Y Returns56.5%

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