This 5-star rated SBI mutual fund is performing best in its category: Know how

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Instead of investing directly in a specific stock, one might consider using a mutual fund as an investment vehicle, since it has a portfolio of companies that are professionally managed by fund managers. This helps to reduce your risk to some extent while still giving you the greatest risk-adjusted returns. Investments in mutual funds are ideal for portfolio diversity since they offer greater long-term returns and help you build wealth. Financial advisors typically advise looking at past performance, stock holdings, fund manager experience, sector allocations, and much more. But in this section, we’ll focus on SBI Contra Fund – Direct Plan – Growth, which, based on a number of risk ratios, is outperforming all other funds in its category.

SBI Contra Fund – Direct Plan – Growth

The fund was launched on July 14th, 1999, and is now rated 1 by CRISIL and 5 stars by Value Research. As of June 30, 2022, SBI Contra Direct Plan-Growth had assets under management (AUM) at Rs. 5291.25 crores, and as of August 26, 2022, the fund’s NAV was Rs. 229.66. The expense ratio of the fund, which is 1.25 per cent, is higher than that of the majority of other funds in the same category. Since its introduction, SBI Contra Direct Plan-Growth has generated returns of an average of 15.01% per year, and 22.06% over the past year, which indicates that every two years the fund doubled investors’ money. 

The fund has produced an annualised SIP return of 24.09% during the previous five years, translating to a SIP of 10,000 invested five years ago becoming almost 10.89 lakh now. The fund has produced an annualised SIP return of 36.79% over the past three years, which implies that a SIP of 10,000 invested in this fund three years ago would now have grown to around 6.05 lakh.

How SBI Contra Fund – Direct Plan – Growth is performing best in its category?

SBI Contra Fund outperformed its counterparts, including ICICI Prudential Value Discovery Fund, Templeton India Value Fund, IDFC Sterling Value Fund, Tata Equity PE Fund, and Nippon India Value Fund, in the previous year, with a 1-year annualised return of 21.03%. The fund outperformed its indicated counterparts in the past six months with annualised gains of 12.75 per cent. In addition to its recent performance, the fund is doing well in terms of risk ratios when compared to its rivals.

A standard deviation is a ratio that indicates the risk profile or volatility of a mutual fund’s returns; the lower the ratio, the better the fund may perform and provide returns that are higher than the category average. SBI Contra Fund’s standard deviation ratio is 20.07, which is lower than the category average of 20.94 and indicates less volatility than its competitors. India Invesco Kotak India EQ Contra Fund – Direct Plan – Growth, DSP Flexi Cap Fund – Direct Plan – Growth, and Contra Fund – Direct Plan – Growth all have standard deviation ratios of 21.31, 21.43, and 21.07, respectively. 

A beta ratio indicates a mutual fund’s relative volatility against its benchmark index. The beta ratio of the SBI Contra Fund is 0.87 in comparison to the category average of 0.93, which shows that the mutual fund is relatively less volatile than its benchmark S&P BSE 500 TRI. Invesco India Contra Fund – Direct Plan – Growth has a beta ratio of 0.96, Kotak India EQ Contra Fund – Direct Plan – Growth has a beta ratio of 0.97 and DSP Flexi Cap Fund – Direct Plan – Growth has a beta ratio of 0.94, all these fund’s carrying high beta ratio than SBI Contra Fund indicating how volatile they are. 

The risk-adjusted relative returns of the fund are measured using the Sharpe ratio, which is a measurement of an investment’s return after accounting for all underlying risks. SBI Contra Fund’s Sharpe ratio is 1.11, higher than the category average of 0.81, indicating that it has outperformed its peers in terms of risk-adjusted returns. For example, Invesco India Contra Fund’s Sharpe ratio is 0.69, Kotak India EQ Contra Fund’s Sharpe ratio is 0.64, and DSP Flexi Cap Fund – Direct Plan’s Sharpe ratio is 0.67. 

Jensen’s Alpha ratio demonstrates how a mutual fund scheme’s risk-adjusted return compares to the anticipated market return projected by the Capital Asset Pricing Model (CAPM). The Jension’s Alpha ratio for the SBI Contra Fund is 9.17, higher than the category average of 2.93, indicating that the fund has surpassed returns that were expected by the market. Its peers such as Invesco India Contra Fund has a Jensen’s Alpha ratio of 0.2, Kotak India EQ Contra Fund has a Jensen’s Alpha ratio of -0.59 and DSP Flexi Cap Fund – Direct Plan – Growth has a Jensen’s Alpha ratio of 0.18, demonstrating how the funds, with the exception of SBI Contra Fund, have underperformed the market in terms of all the risk measures mentioned above.

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