As an investor, if you looking to diversify your portfolio, if you have modarat experience and a willingness to take the calculated risks, then contrast funds can be a valuable addition to your portfolio.
Let us explore what contract funds are, why they might be a good investment, and their risk-earTURN profile.
What Are Contra Funds?
Contra funds are equity mutual funds that follow a contrarian investment strategy. Fund manners invest in stocks that are undertained or out of favorite with the market but have strong potential for future growth. The assumption is that these stocks will recover and generate significant returns over time. This strategy is backed by thorough research and analysis of market cycles, Economic Conditions, and Business Fundamentals.
According to the Association of Mutual Funds in India (AMFI), Contra Funds Full under the Equity Mutual Fund Category and Must Maintain at Least 65% of of their Portfolyo intestines and equity-equities Instruments.
Why investment in contrast funds?
Investing in contract funds can be beneficial for several reasons:
1. long-term growth potential
Since contrast funds investment in undervalued stocks, they offer the potential for strong Gains when the Market Corrects Itself.
2. Diversification
These funds investments sector, Reducing Sector-Specific Risks.
3. Market INFFICINCY Advantage
Contra funds take advantage of market intertition where stocks are misprured due to temporary negative sentiments.
4. Professional Management
The fund manners are employees Deep Research and Historical Trends to Identify Potential Turnaround Stocks.
Top Contra Funds in India
Below is a comparative analysis of some of the top-pharyming contrast funds based on their 1-Year and 3-Year Returns, Total Expense Ratio (TER)and Asset Management Company (AMC):
Contra Funds with 1-Year and 3-Year Returns
| SR. No. | Fund | 1-IR Return | 3-IR Return | Ter | Amc |
|---|---|---|---|---|---|
| 1 | Invesco India Contra Growth Direct Plan | 10.45% | 19.33% | 0.56% | Invesco Mutual Fund |
| 2 | SBI Contra Growth Direct Plan | 4.31% | 24.11% | 0.60% | SBI Mutual Fund |
| 3 | Kotak India Eq Contra Growth Direct Plan | 3.37% | 19.85% | 0.60% | Kotak Mahindra Mutual Fund |
Source: Kuvera, Feb 26, 2025.
Risks and returns profile
While contrast funds offer significant upside potential, they come with their own set of risks. Let us explore the risk and return profile of the contrast funds.
Return Potential of Contra Funds
Contra Funds Follow a Value-Investing Approach, meaning they seek out stocks that are currently undervalized or out of favorite but have strong long-term growth potent. Based on the provided table, the return profile of contrast funds depending on the investment horizon:
1. Short-Term Returns (1-Year Performance)
- Invesco India Contra Growth Direct Plan Has the Best Short-Term Return (10.45%)Suggessting that the fund has been able to capitalize on recent market trends effectively.
- SBI Contra Growth Direct Plan (4.31%) and Kotak India Eq Contra Growth Direct Plan (3.37%) Have also relatively lower 1-Year returns, indicating that their portfolio stocks might still be in the recovery phase.
Key Insight
In the short term, contrast funds can be valtelle, as they invest in underperforming stocks that may take time to appreciate. The 1-Year Return Fluctation Sugges That Short-Term Investors Might Not see Immediate Gains and Should have a higher risk tolerance.
2. Long-Term Returns (3-Year Performance)
- SBI Contra Growth Direct Plan Leads With 24.11% Over three years, indicating that its investment strategy has played out well over a longer period.
- Kotak India Eq Contra Growth Direct Plan (19.85%) and Invesco India Contra Growth Direct Plan (19.33%) Have Slightly Lower But Still Competitive Long-Term Returns.
Key Insight
This demonstrates that contrast funds work best over longer investment Horizons as they wait for undervalized stocks to recover. Investors with a long-term percent (3-5 years) are likely to benefit the most.
Risk Factors of Contra Funds
While contrast funds have the potential to generate high returns, they come with inharent risk:
1. Market Volatily Risk
- Since Contra Funds Invest in Stocks that are temporarily out of favorite, short-term price fluctations can be significant.
- The 1-Year Return Variation (from 3.37% to 10.45%) sugges that different funds have different levels of short-term valati, influenced by their specific stocker stocker.
2. High Dependence on Market Cycles
- The performance of contrast funds Relies Heavily on Market Corrections—They performance well when the market recovers, but they may underperform during prolonged downturns.
- The 3-Year Returns (Ranging from 19.33% to 24.11%) INDICATE that these funds have performed well recently, likely benefiting from a market upswing. However, past performance is not a guarantee of future results.
3. Fund-Specific Risks (Expense Ratio IMPACT)
- Total Expense Ratio (TER) Affects returns since it represents the cost of managing the fund.
- Invesco India Contra Growth Direct Plan has the lowest term (0.56%)Which means investors retain more of the returns.
- SBI Contra Growth and Kotak India Eq Contra Growth Have Slightly Higher Ters (0.60%)Which may slightly Reduce Net Returns over time.
Key Insight
Investors Should Consider The Ter While Choosing A Fund, As Lower Expense Ratios Can Enhance Overall Returns in the long run.
Final takeaways
- For Investors Seeking Short-Term Gains, Invesco India Contra Growth Direct Plan Looks More Favorable Due to its 1-Year Performance and Lower Ter.
- For long-term investors, SBI Contra Growth Direct Plan is a Strong Contender Given Its Best 3-Year Returns.
- Kotak India Eq Contra Growth Direct Plan has performed modestly but remains a reliable option with the contrast category.
Wrapping up
Contra funds are a unique investment option for investors who have a long-term percent and are willing to take the moderate risk. The Funds Leverage Market INEFFICIENCIE to Buy UndertULUED Stocks, offering the potential for superior returns. However, patience and an undersrstanding of Market Cycles are Crucial for Investors Opting for this category. If you are looking to add contra -funds to your portfolio, consulting with a financial advisor and assessing your risk appetite is essential before making any investment decisions.
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