Now as we are here listing out some of the best contra funds to invest in 2021, we will first discuss in brief what are these and other aspects around them.
What are Contra Equity fund and for whom are these suitable bets for investment?
As the term suggest Contra fund these tend to park funds against the market sentiment or work with the contrarian view, this is with respect to both the securities that the fund buys or sell and even with respect to the strategy it adopts. The assumption on which these funds work is that too much of concentration tends to make the market either very expensive or cheap at times.
Difference between Value Funds and Contra Funds
These 2 funds show some extent of similarity between the two as Value funds also tend to park funds into instruments which are overlooked and hence these instruments tend to offer return in quite a longer time span. Likewise in the case of Contra funds, fund manager park funds into instruments which are otherwise against the general market sentiment. Herein the fund is parked into stocks that are currently undervalued or trading at a price lower than their intrinsic value.
In the case of Value funds, purely fundamental analysis comes into play, while in the case of Contrarian investment strategy other parameters are also paid heed to. Primarily the investment is made into stocks that are not performing currently well but as and when the downsides affecting them are mitigated they would rise to their higher or fair value.
|Contra Equity Fund||Rating||SIP 1-year return in %||3-year return in %||5-year return in %||AUM|
|SBI Contra Fund-Regular Plan Growth||CRISIL 5 Rating||39.55%||64.03%||66.32%||Rs. 2247.75 crore|
|Kotak India EQ Contra Fund:||CRISIL 4-star rated & Value Research-5 Star rated||25.77%||43.84%||58.52%||Rs. 1013.82 crore|
|Invesco India Contra Fund-Growth||CRISIL 3 star rated and Value Research 4-star rated||24.66%||44.71%||58.54%||Rs. 7033.07 crore|
1. SBI Contra Fund-Regular Plan Growth:
The fund introduced in the year 1999 invests its corpus in a staggered way and are more into large and small cap stocks. NAV of the fund as on July 7 is Rs. 176.88 and in comparison to its benchmark S&P BSE 500 TRI over a 1-year period, the fund has delivered good returns of 85.42%. For reaping the maximum gains, investors need to have an investment horizon of at least over 3 years.
Top holdings of the fund comprise ICICI Bank, Infosys, Axis Bank, Sun Pharma, GAIL, Lupin and Carborundum etc.
SIP investment into the fund can be started with Rs. 500, while for lump sum investment one needs to put in a minimum of Rs. 5000.
In case the investor makes redemption before a period of 1 year then there is charged an exit load of 1 percent.
2. Kotak India EQ Contra Fund (KCONF):
For the fund, the investment is mostly into large and mid cap and hence in terms of rolling return it underperformed the other Invesco India contra fund. The stock selection of the fund integrates the manager’s conviction as well as the quantitative model. “We choose stocks which are fundamentally sound, but are undervalued. When we are looking at intrinsic value, we are not just looking at the price to earnings or the price to book value or an EBITDA multiple, but we are also looking at different fundamental factors such as operating profitability, cash flow, balance sheet leverage and return ratios”, said Shibani Kurian, Head of Research and Equity Fund Manager at Kotak Mutual Fund.
Over a 1-year period the fund has outperformed its benchmark Nifty 100 TRI with return of 54.9%, nonetheless this has been lower than the category average return of 64%.
Some of the top scrip holdings wherein it holds a diversified portfolio are Infosys, RIL, ICICI Bank, HDFC Bank, SBI, UltraTech Cement, Axis Bank, Larsen and Toubro etc. Furthermore, the fund is more into financial, technology and construction space.
SIP in the fund can be started for an amount of Rs. 1000.
3. Invesco India Contra Fund-Growth:
The fund has been into existence since the year 2007 and as of July 7 commands an NAV of 70.79. Expense ratio of the fund is less than the category average at 1.83 percent. Furthermore, most of the corpus is put into the large cap category.
SIP in the fund can be started for as less as Rs. 100. In a 3-year period, the investment of Rs. 10000 monthly SIP is now valued at Rs. 5.15 lakh, offering an absolute return of 44.71 percent.
Top holdings of the fund include ICICI Bank, HDFC Bank, Axis Bank, Infosys, RIL, Sun Pharma etc.
These funds have the potential to generate good enough returns and this has been seen in the past. In some of the conditions, investors tend to avoid some of the stocks which results in their mispricing and investment into such funds can be beneficial on the hope that in the near to medium term, stock price shall stabilize and return to its original or real value, providing gains to its investors.
Investing in mutual funds is risky and investors should understand the risk. Greynium Information Technologies and the author do not take any responsibility for losses incurred based on the decisions in the article. The article is meant for informational purposes only.