Contra Funds Complete Guide 2025
The special form of mutual fund in India is the contramundi fund. These equity funds employ a special investment approach, they go against the grain or invest in those stocks that are currently underpriced, unpopular, or out of fashion by most investors. Rather than using the market trends, contract fund managers will select the stocks that they believe are on discount, but are likely to grow in future. According to the SEBI regulations, these funds should allocate at least 65 percent of their funds in equities.
It is based on the contrarian investment strategy. In this case, the fund managers purchase those companies, which have immediate problems hoping that they will change their fortunes later on rather than investing in sectors or stocks, which are already popular.
It is a strategy that is becoming popular with Indian investors to offer a diversification of mainstream funds and future high returns in the long term, particularly in volatile market conditions such as experienced in 2024 and into 2025.
Some of the crucial issues in the contra funds are the investment style, risk profile, fund performance, and the difference between them and the other equity mutual funds.
Why Are Contra Funds Important In The Present Day
The challenge that will be placed on investors in 2025 is an unstable market which includes fluctuating interest rates, geopolitical tensions and fast industry changes such as IT, pharma industry and infrastructure. Lots of old-fashioned diversified equity funds appear congested, and this undercuts returns. Contra funds are a new strategy in this regard.
They are not concerned with short-term trends on the market. Contra fund managers are able to see an opportunity in an industry or a company that is out of favour temporarily as a result of cyclical factors or temporary difficulties. With the changing nature of the Indian economy, particularly due to the governmental reforms and digitalisation, the contra funds can spot the leaders of tomorrow at an earlier stage, even before the rest of the market.
How Do Contra Funds Work
Contra funds are run on a contrarian basis. Rather than purchasing stocks when they have been on a rally, managers select those that are under pessimism at the moment, either because of the bad news or due to temporary problems in the industry, yet with excellent fundamentals.
- Fund managers do extensive research to unearth opportunities that are underpriced.
- They depend on the market cycles which go in favour of such stocks in the course of time.
- Hold such picks medium-to-long-term - 3 to 5 years and so on.
It implies that when the market moves in an upward direction, contra funds may not perform effectively whereas when the market moves back or in a cycle of recovery, the funds may give good returns as the stocks that are neglected recover.
Did you know?
AMFI data shows that the category of Indian contra funds performed better than the largecap funds during the post-pandemic rally of 2020-23.
What Are The Major Characteristics of Contra Funds
- Minimum 65 percent equity share (according to SEBI)
- Investment strategy that is contrarian, and not herd mentality.
- Medium to high risk level
- Apposite when the patient investor wants to create wealth over a long term basis.
- Invests in market capitalisation- largecap, midcap and smallcap.
- The skill and judgement of fund manager plays a big role.
Contra funds are of direct and regular ones, and most of the leading AMCs in India have at least one contra fund.
Pros And Cons Of Contra Funds
Pros
- Possible gains of increased returns in long term in case markets turn against.
- Brings diversification to the portfolio- less overlap with mainstream funds.
- Chance to acquire strong firms at reduced costs.
- Has the capability to minimize the risk of downside in hot markets.
- Like other equity funds, tax benefits.
Cons
- Failure to perform in long bull markets.
- Full of patient, experienced investors.
- Fund manager contrarian skills are of high importance in success.
- The May could be more volatile at times.
People Also Ask
Are contrafunds safer than the normal equity funds?
Contra funds do not work more safely but work in another way. They are able to assist in holding down the losses in case of a stock correction in mainstreams, but they also have their risks.
Who Needs To Invest In A Contra Fund
The contras funds can be appropriate to the investors with a moderate risk appetite up to high risk and an investment horizon of 5 years and above. Contra funds can be an addition to your portfolio in case you are seeking to diversify your equity mutual fund portfolio, and you do not care about short-time fluctuations provided your fund manager has the opinion.
- Appropriate in goals based investments (retirement, children education etc.)
- Not suitable to short term investors and people who require liquidity.
- Best suited when used with diversified or largecap funds.
Professionals View:
Most Indian financial advisers would suggest that you keep the ratio of contra funds to 15-20 percent of your total equity.
What Is The Difference Between Contra Funds And Value Funds
Both the contra funds and the value funds invest in undervalued stock, however something that the contras only use is the contrarian strategy; the contra funds invest where there is over pessimism, even though the value is not very obvious at the moment.
| Risk | Contra Funds | Value Funds |
|---|---|---|
| Investment strategy | Contrarian | Value based |
| Stock selection | Least popular | Underpriced stocks |
| Risk profile | Moderate-High | Moderate |
| Normal holding period | 3-5 years | 3-5 years |
| Example (2025 AUM, INR Cr) | 25,000+ | 1,10,000+ |
People Also Ask
Does a contra fund qualify as a value fund?
Contra funds deploy a value-based strategy, although its primary mission is to work against the prevailing market trends instead of purchasing undervalued stocks only.
Best Contra Funds In India 2025
We will see some of the most popular contra funds in India, as of 2025:
| Fund Name | 3-Year CAGR in millions of dollars | AUM (Cr) | Expense Ratio (%) |
|---|---|---|---|
| ICICI Prudential Contra Fund | 25.2 | 17,560 | 1.10 |
| SBI Contra Fund | 22.8 | 9,050 | 0.90 |
| Invesco India Contra Fund | 21.3 | 2,800 | 0.88 |
| Kotak India Contra Fund | 19.9 | 2,000 | 0.92 |
As of March 2025. The performance that was attained in the past might not be maintained in the future.
Composition of Sample Portfolio
An example of a contra fund portfolio in 2025 can be:
- Financial Services: 22 percent
- FMCG: 18 percent
- Information Technology: 15 percent
- Healthcare: 12 percent
- Others (Infra, Energy, Chemicals, etc.): 33 percent
Largecaps exposure has not yet been eliminated but with heavy investment in those industries that are no longer popular or which have started to recover.
Insider View:
A number of the best returns in contras fund in 2022-24 occasionally occurred in pharma and infra, which previously went unnoticed by growth funds.
How To Select The Most Preferred Contrafund
When choosing a contra fund that fits your requirements there are some things that you need to take into consideration:
- Past performance in various phases of the market (3, 5, 7 years)
- Recording and experience of the fund manager.
- Ratio of expenses versus counterparts.
- Portfolio construction and stock selection procedure.
- Credibility of fund house and research strength of AMC.
It is also clever to check the level of your portfolio that is already invested in areas or stocks already within the contra fund so as to avoid redundancy.
People Also Ask
Would you look at ratings prior to investing in contra funds?
Although CRISIL, Morningstar, and other ratings are helpful, never ignore consistency and conduct your own research, as well.
Taxation Rules Of Contra Funds
Contra funds are taxed as equity funds according to the tax laws of the Indian income tax (FY 2024-25):
- Short Term Capital Gains (STCG) 15 percent when holdings are below 12 months.
- Long Term Capital Gains (LTCG): 10 percent of the gain over ₹1 lakh, of holding in excess of 12 months.
- Investor pay slab tax on dividend.
There are no additional tax advantages available, and ELSS offers are not available in contrafund category as of 2025.
Investment In Contra Funds Web
It is easy to invest in contra funds via:
- AMC websites and mobile apps are official.
- Internet based mutual fund sites (Groww, Zerodha, ET Money, Kuvera, etc.).
- Representatives or financial consultants.
- Direct and routine plans on offer.
Keep in mind to take your PAN, KYC information and associated bank account.
Did you know?
SIP in contra funds enables investors to gain positively with correcting of the markets by accumulating more units when prices are low.
Important Milestones Of Contra Funds In The Year 2025
- The contrarian style aids in exploiting opportunities that are not thought to last over a period of multiple years.
- Maximum 3-5 years projection desired.
- Both lump sum and SIP options.
- In 2025, Indian contra funds are run on more than ₹25,000 crore which is an increase by the year.
- ICICI Prudential Contra Fund is the largest by March 2025.
Table Of Pros And Cons To Be Easily Understood
| Pros | Cons |
|---|---|
| Long term wealth creation | Performs poorly during long bull markets |
| Diversification advantage | Large dependency of fund managers |
| Limit downside risk | Can be limited |
| Suitable with seasoned investors | Can have a higher volatility |
TLDR Or Quick Recap
In India, contrafunds are mutual funds which are invested in the opposite direction of the market sentiment; that is, the mutual funds purchase undervalued, neglected or unpopular stocks. They are appropriate to experienced investors who have the long-term outlook and are diversified and may perform better in the market during the correction or revival cycles. The expertise of the fund manager and the patience of the investor in the high and low experienced in the market is the key to their success.
FAQ: People Also Ask
Q1: What is the meaning of contra fund?
A1: It is a mutual fund that employs contrarian investment strategy whereby it buys stocks and industries that are not popular with the existing market trends in the hope that it will make money as market cycles reverse.
Q2: Are contra funds high risk?
A2: They have medium to high risk as they make bets that are opposite to the prevailing mood, although they can limit the downside in the event that mainstream stocks decline.
Q3: What returns would you expect to get with a contra fund?
A3: The returns are not similar, but the best contra funds in India have been able to provide 17 to 25 percent per year returns in the last 3 years. The performance in the past does not necessarily translate to the future.
Q4: What is the length of time to remain in a contra fund?
A4: The contrarian strategy requires at least 3 to 5 years and hopefully more to work and produce optimal results.
Q5: Is it possible to begin with contra funds when one is a beginner?
A5: Contrary funds might experience greater volatility in the short term and beginners should start small and then accumulate and diversify in equity funds since they are less prone to volatility over the short-run.
Q6: What are The taxation of contra funds in India?
They are taxed as any equity mutual fund- STCG tax is 15 per cent and LTCG tax is 10 per cent above ₹1 lakh.
Q7: What is the Minimum amount to open a SIP in a contra fund?
Minimum SIP normally begins at ₹100 or ₹500 monthly, according to AMC.
Q8: What is the difference between a contra fund and a sectoral fund?
A8: Contra funds take a position in out of favour or under rated stocks in sectors. Sectoral funds remain in a single sector.
Q9: What are The best contra fund in India 2025?
A9: ICICI Prudential Contra Fund, SBI Contra Fund and Invesco India Contra Fund are the best choices according to 2025 information.
Sources
- Data from AMFI India
- SEBI
- Personal AMC reporting (ICICI AMC, SBI MF, Invesco MF, Kotak MF)
- Articles by industry experts by 2025
