What Is A Contra Fund? Should You Invest In It?

by Shatakshi Gupta

With the increasing awareness among people, mutual funds have become quite popular among investors. Mutual funds schemes collect money from investors. They invest this money in shares. For those who do not know much about investing in the stock market, investing in equity mutual funds is a good option. Mutual funds are of various types. Such variations are based on investments made by the fund. Accordingly, their category is decided. Investors can choose these mutual fund schemes according to their financial goals. On this platform, we have discussed various types of funds. Following the same trend, today we will discuss about Contra funds. So, let’s begin.

What are contra funds?

 Contra Mutual Funds are also one of the many types of equity mutual funds. These are equity mutual funds, which invest money with a contrasting outlook in the market. These funds invest in contrary sectors of the current market trend. In other words, here money is invested in poor performing sectors. These schemes buy these shares at the time when a dip is available. The decision to buy stocks of poor performing sectors is taken considering that the sector will perform better in the long run. The biggest benefit here is the shares are bought in these funds at a much lower price.

After SEBI’s reclassification of mutual funds, fund houses can offer either Contra Funds or Value Funds. Fund houses are not allowed to offer both.

Read more: Nippon India and ICICI Prudential bring the Country’s 1st Auto ETF; Should you Invest in These?

These funds are risky:

The portfolio of Contra Funds consists of defensive and beaten stocks which give negative returns during market downturns. Money is invested in them thinking that they will give good returns in the long term. However, there is a huge risk involved with these schemes.  The stocks that are included in a portfolio often underperform during bullish periods. The effort is to identify such stocks, which have the potential to give good returns in the long run. As these funds are based on future speculations, uncertainty is always involved in these funds.

Who should invest in these funds?

As we have seen above Contra funds are in the high-risk category.  Because investment is made on the prospects of good performance of the stock in future, it may take longer to give returns. These funds should be invested by those investors who can keep investing for long term goals. Moreover, these funds also help in diversifying the portfolio.

Top contra funds:

  • SBI Contra Fund: Annual return in 5 years-15.10 per cent, convert 10 lakh into 20.2 lakh.
  • Invesco India Contra Fund:  Annual return in 5 years-17.27 per cent.  Value of investment of Rs 10 lakh turned into 22.2 lakhs
  •  Kotak India EQ Contra Fund: Annual return in 5 years-17.16 per cent. This fund made Rs 22.1 lakh from Rs. 10 lakh in 5 years.

Also read: Scattered Portfolio? Here’s How To Transfer Your Shares From One Demat Account To Another

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