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Nonetheless, the big question is – should you consider contra funds in 2025? With rotating sectors taking center stage and market valuations subdued in some areas, it could be a prudent discussion to have and we’re going to get into it below.
What Are Contra Funds?
Before we kick off with our discussion, let’s ensure everyone understands the concept of contra funds. Simply put, these are mutual funds that go against the market trend and do the opposite of what investors are doing. While most investors buy stocks of companies that are performing well, contra funds seek out stocks and sectors that are temporarily out of favor, or undervalued, the ones everyone else is shunning.
The objective is to acquire shares of fundamentally sound companies during periods of reduced valuation, hold on to them through the inevitable market fluctuations, and sell once the market appreciates their value. The strategy demands a patient temperament and a willingness to endure bouts of market volatility, generally ideal for those who prefer against the tide approaches.
As you follow the markets in 2025, you probably notice there are some gains and losses. For one, domestic investments and global optimism have propelled certain markets to new heights; however, persistent inflation, global interest rates, and uneven corporate earnings are creating pockets of correction.
The imbalance is advantageous to contra funds. While some sectors are overpriced and others are neglected, ignored sectors are beginning to show promise for long-term growth. Contra mutual fund strategies thrive during such conditions, and if you understand the risks, this is a fascinating moment to explore.
Why Contra Funds May Be Relevant in 2025?
How about we start with the market being out of favor with opportunity? Right now, underperforming sectors are finally starting to perform while momentum stocks appear to be overheated and a shift towards value stocks is inevitable.Contra funds help you tap into these hidden opportunities, avoiding the retail FOMO traps from over-enthusiastic investors. This allows you to defend your portfolio strategically without sliding into overly conservative positions. If you prefer the strategy of buying low and waiting for the market to rebound, this might just be your play.
Risks of Investing in Contra Funds Right Now
As with any investment strategy, it’s wise to understand the full scope of what you are getting into. Contra funds do have drawbacks, which include:
● Undervalued stocks require time to gain value – you’ll need great patience.
● Not suited for those with short-term timelines or who get jittery with volatility.
● Strong bull markets tend to punish value-focused strategies as overhyped favorites rally and ignored.
That said, for those willing to be patient, it remains a feasible investment strategy.
Who Should Consider Investing in Contra Funds?
Here’s a quick checklist of who should consider investing in contra funds:
● Ideal for experienced, but moderate to aggressive, investors with a timeline stretching upwards of 5 to 7 years.
● Great if your aim is to implement a contrarian diversification approach to your portfolio.● Best for people who do not mind waiting while others are busy chasing the latest trends.
● Not suitable if you are a conservative risk-averse investor or prefer momentum-driven stocks.
Top Contra Funds Performance in 2025
This is the list of the top performing contra funds based on their long-term returns in the last few years. [1]
Fund Name 1Y Returns 3Y Returns 5Y Returns
SBI Contra Fund Direct – Growth +3.46% +26.51% +35.09%
Kotak India EQ Contra Fund Direct – Growth +3.42% +26.84% +27.94%
Invesco India Contra Fund Direct – Growth +9.98% +26.18% +26.62%
SIP or Lumpsum: Which is Preferred in 2025?
Let's look at some tips to help you decide between SIP and lump sum investing:
● SIP is beneficial during a turbulent market because it allows you to invest gradually without worrying about trying to time the market.
● Lump sum investment is best when markets correct significantly or if you have cash that is idly sitting around ready to be used.
Make a choice based on your circumstances and your comfort with the risk involved.
Final Verdict: Does This Moment Conform to Your Needs?
Does now look like a suitable moment for you to think about contra funds? Given the current sentiment in the market ,some stocks appear expensive while some remain silently underpriced, contra funds can capitalize on those opportunities. They bring a different blend to your portfolio, especially if you are one who loves to swim against the current.
Be patient. This is not a quick win with the funds’ value appreciated. Contra funds have a tendency to underperform during trend-chasing markets. In case you have a strong risk appetite, are willing to wait it out, and have faith in the value approach, then yes — this year could be good for you.
Read More: Integrated Industries Multibagger Stock Turns One Lakh Rupees into Six Crores in Five Years
