Are Contra Mutual Funds Good for Long-Term SIPs?

In today’s uncertain and often volatile equity market, investors are revisiting time-tested strategies for long-term wealth creation. One such strategy is investing through contra mutual funds—schemes that adopt a contrarian approach to capitalise on market inefficiencies. But with shifting macroeconomic dynamics, many are now asking: are contra funds still a smart choice for long-term SIPs?

What Are Contra Mutual Funds?

Contra mutual funds are equity schemes that follow a contrarian investment strategy. Rather than following market trends, these funds invest in stocks that are currently undervalued, ignored, or underperforming, but have long-term growth potential. The idea is simple: buy low when sentiment is negative and sell high once value is recognised.

This strategy requires patience and strong conviction, as short-term underperformance is not uncommon. Over time, however, the right calls can lead to significant gains—especially when market cycles reverse.

Difference Between Value Fund and Contra Fund

Both value and contra funds focus on undervalued stocks, but the difference between value fund and contra fund lies in their core investment philosophy.

• Value funds focus on fundamentally strong companies that are trading below their intrinsic value. These stocks may be temporarily out of favour but offer sound long-term prospects.

• Contra funds, on the other hand, go a step further by actively betting against prevailing market sentiment. They may invest in sectors or stocks that are currently disliked by the market, expecting a turnaround.

In essence, while all contra funds are value-focused, not all value funds adopt a contrarian strategy.

How Contra MFs Perform in Volatile and Rebound Phases?

Contra MFs tend to lag during strong bull markets as they avoid momentum-driven stocks. However, they shine during volatile periods or market corrections when undervalued stocks begin to recover.

Their strength lies in identifying potential winners early—before they become market favourites. During economic rebounds or sectoral rotations, contra funds often outperform as sentiment shifts in favour of previously overlooked sectors.

That said, timing plays a crucial role. Since these funds rely on turnarounds, they demand a longer investment horizon to realise their full potential.

List of Contra Mutual Funds

Although past performance is not a guarantee of future returns, some of the best contra mutual funds have consistently delivered value over the long term. Based on consistency, fund management, and historical performance, here are a few top contra funds worth tracking in 2025:

• Kotak India EQ Contra Fund – Known for its disciplined contrarian calls across market caps.

• Invesco India Contra Fund – Focuses on under-researched stocks and sectors.

• SBI Contra Fund – A well-diversified portfolio with a strong historical track record.

When selecting the best contra fund, consider the fund manager’s track record, investment philosophy, and how well the portfolio aligns with your risk profile and goals.

Are Contra Funds Suitable for Long-Term SIPs?

Yes, contra mutual funds can be ideal for long-term SIPs, provided investors are patient and understand the nature of contrarian investing. Through systematic investment plans, one can average out the purchase cost and benefit from market cycles over time.

Contra funds may not always deliver the highest short-term returns, but their long-term potential lies in riding the recovery of undervalued assets. They are particularly useful in uncertain markets or during sectoral rotations when overlooked companies start gaining traction.

However, SIP investors must stay invested across market cycles and resist the urge to exit during underperformance. Those with a horizon of 5–7 years or more stand to benefit the most.

How to Choose the Right Contra Fund?

To make an informed choice, consider these factors before investing in a contra MF:

• Fund Manager’s Experience: Look for a proven track record in navigating market cycles using contrarian strategies.

• Consistency of Returns: Past performance should reflect resilience across bear and bull markets.

• Portfolio Composition: Analyse sector allocation and stock selection—diversified exposure is key.

• Expense Ratio: Lower costs mean better compounding over time.

• Risk Appetite: Contra funds may carry higher short-term volatility. Match it with your investment tolerance.

Aligning your SIP in a contra fund with these factors will help you make a well-informed, goal-oriented decision.

Conclusion

In a market where emotions often drive prices more than fundamentals, contra mutual funds offer a disciplined approach to long-term investing. While they may not suit every investor, those willing to stay patient and trust in market cycles can benefit significantly from this contrarian strategy.

As we move through changing economic conditions in 2025, contra funds—especially when invested via SIPs—can offer diversification, value-oriented exposure, and the potential to outperform when sentiment shifts.