India's first contra MF scheme turns Rs 10,000 SIP into Rs 7 cr in 25 years

SBI Contra Fund, India's first contrarian mutual fund scheme, is celebrating a quarter-century of success. Launched in July 1999, the fund has consistently delivered returns that outperform its benchmark index, the BSE 500 TRI. The scheme has generated 19.99% return since inception (July 5, 1999) vis-à-vis 16.12% of its benchmark BSE 500 TRI.

Imagine investing Rs 1 lakh in 1999 for your child's education. With the fund's returns, that amount would have grown to a significant Rs 95.3 lakh today (as of June 28, 2024) - a much more comfortable sum for their future studies.For those who opted for a monthly investment (SIP) of Rs 10,000 since launch, the accumulated amount would be a staggering Rs 7.19 crore today. That's a testament to the power of compounding! 

Think about using SIP for your retirement planning. Even a relatively small monthly investment, consistently made over a long period, can lead to a substantial nest egg.

 As of June end, SBI Contra Fund holds an AUM of Rs 34,366 crore with over 20.5 lakh live folios. In the last three years, the fund has returned 29.64 per cent returns. 

Unlike most funds that invest in hot and trending stocks, contra funds take a calculated gamble by focusing on out-of-favor or undervalued companies. The logic is that when the overall market sentiment is negative towards a particular sector or company, their stock prices might be depressed. These funds see this as an opportunity to buy low with the belief that the company's fundamentals are strong and its stock price will eventually recover. Imagine everyone is selling a particular brand of shoes because a new competitor just entered the market. A contra fund manager might see this as an overreaction and believe the established brand still has value. They might invest in that company's stock, expecting its price to rebound once the initial panic subsides.

Contra funds are equity-oriented funds that invest in a contrarian investment strategy. There are only three contra funds: SBI Contra Fund, Invesco India Contra Fund and Kotak Ind EQ Contra.

The SBI Contra Fund has consistently outpaced the BSE 500 TRI across various investment horizons:

Since its inception, the scheme has offered point-to-point CAGR returns of 28.39 per cent in 5 years, 29.64 per cent in 3 years and 47.23 per cent over 1 year. During the same time period, the scheme’s benchmark (BSE 500 TRI) delivered only 19.95 per cent, 19.97 per cent and 38.40 per cent return, respectively.

5 Years: 28.39% vs 19.95% - Consider this if you're saving for a down payment on a house. The fund's historical performance suggests it could potentially help you reach your goal faster compared to a traditional savings account.

3 Years: 29.64% vs 19.97% - This timeframe might be suitable for someone saving for a dream vacation. The SBI Contra Fund's returns could give your travel fund a significant boost.

1 Year: 47.23% vs 38.40% - This short-term outperformance is impressive. However, remember that past performance doesn't guarantee future results.

Similarly, if SIP returns are compared, the SBI Contra fund has delivered returns of 17.94 per cent (15 years), 21.84 per cent (10 years), 35.62 per cent (5 years), 34.25 per cent (3 years) and 48.68 per cent (1 year). Its benchmark BSE 500 TRI's returns are 15.86 per cent (15 years), 17.73 per cent (10 years), 24.82 per cent (5 years), 25.40 per cent (3 years) and 43.02 per cent (1 year).

The scheme is suitable for investors who are seeking long-term capital appreciation and want investments in a diversified portfolio of equity and equity related securities following a contrarian investment strategy. The portfolio of the scheme is spread across 88 stocks. The top 10 stocks constitute 22.73% of the portfolio. The scheme has an allocation of 37.69% in large cap, 25.14% in mid cap, 13.86% in small cap, and 23.31% in others.

Dinesh Balachandran has been managing the fund since May 2018. The attractive performance of the fund has helped the fund to garner significant assets. 

SBI Contra Fund had the highest allocation of 14.22% in banks, 7.14% in healthcare and automobiles & ancillaries, 5.95% in crude oil, 5.47% in power, 4.46% in  gases & fuels, 3.30% in IT, 2.85% in construction materials, 2.72% in consumer durables, and 2.57% in iron & steel.

Important Note:

Mutual fund investments are subject to market risks. Investors are advised to carefully read all scheme-related documents before investing.