SBI Contra Fund: A Monthly SIP Of Rs 10,000 Would Have Made You Richer By Rs 4.87 Crore In 24 Years

SBI asset management company's (AMC) SBI Contra Fund has completed 24 years of existence this year, making it the first such scheme to achieve that milestone. SBI AMC was India's first asset management company to launch a contra fund on July 5, 1999.

The fund's asset under management (AUM) stood at Rs. 11,893 crore on June 30, 2023. The scheme returned 18.97 per cent since inception against 15.28 per cent of its benchmark S&P BSE 500 TRI, the SBI AMC data showed.

For instance, if you had invested a lumpsum of Rs 1 lakh in the fund at its inception, your investment would have grown to Rs 65.20 lakh. Currently, the fund has 8.78 lakh folios, and the fund managers are Dinesh Balachandran and Mohit Jain.

The scheme offered point-to-point returns of 18.71 per cent in 5 years, 40.91 per cent in 3 years and 32.63 per cent over one year. In the same period, the scheme's benchmark S&P BSE 500 TRI delivered 13.86 per cent, 26.40 per cent and 23.98 per cent returns, respectively.

“The investment philosophy behind this fund is to focus on stocks/sectors that are out of favour at a given point in time. This could be because of abysmal earnings, beaten down stock prices and weak near-term growth outlook of the sector. The challenge is to dig deep and find out why the sector is out of favour. One must make sure that there are no structural issues which bog returns down” says SBI Mutual Fund manager Dinesh Balachandran.

A Snapshot Of How Much You May Have Earned

The fund has delivered superior returns in last 24 years but it is not a linear manner. There are periods when the fund has underperformed too. The performance of SBI Contra Fund, based on historical data, shows a mix of both underperformance and outperformance compared to its benchmark, S&P BSE 500 - TRI, over the course of 13 years.

After 2008, financial crisis, when the market bounced back in 2009, the fund delivered 90 per cent returns, compared to 92.70 per cent delivered by benchmark S&P BSE 500 – TRI. From 2009 to 2011, the fund underperformed its benchmark on yearly basis. This indicates that during this period, the fund's performance was not as strong as the benchmark.

However, from 2012 onwards, the fund started to exhibit periods of outperformance and even the underperformance with lesser margin. In last three calendar years, 2020, and 2021, 2022 the fund has outperformed the benchmark by a significant margin. For instance, in year 2020 the fund outperformed the benchmark by 12 per cent, similarly in 2021 by 18 per cent and in 2022 by 8

per cent.

Balachandran, who had been at the helm of the scheme for last five years, believes that the investor with long term horizon should invest in this fund. “The longer the investment time horizon, the more likely one is to reap good benefits by investing in this fund as the essence of contra investing makes it different from a normal diversified equity fund,” says Balachandran.

Suppose you had taken a monthly SIP of Rs. 10,000 during inception; in that case, you would have invested Rs. 28.8 lakh by now, which would have become Rs. 4.87 crore as on June 30, 2023, or 19.57 per cent returns. Similarly, the scheme delivered 15.13 per cent returns in 15 years, 17.55 per cent in 10 years, 26.51 per cent in 5 years, 28.73 per cent in 3 years, and 28.25 per cent in one year vis-à-vis its benchmark returns of 13.93 per cent in 15 years, 14.49 per cent in 10 years, 17.10 per cent in 5 years, 16.77 per cent in 3 years, and 19.32 per cent in one year.

Despite many positives, the fund's past performance may not guarantee a similar or better performance in the future. Moreover, investors should be aware that mutual fund investments are subject to market risks; hence, they should carefully read all scheme-related documents.

What Are Contra Mutual Funds?

Contra funds bet on underperforming stocks to generate returns. These funds pick strong stocks that trade at a relatively low price. The strategy is to invest early for capital appreciation. Fund managers typically bet against market trends and pick fundamentally strong but cheap stocks, hence the expression Contra.

Currently, there are two other Contra funds in the market, Kotak India EQ Contra Fund and Invesco India Contra Fund. Contra funds can gain rapidly during market corrections. The Securities and Exchanges Board of India (SEBI) mandates them to invest at least 65 per cent of their total assets in equities and equity-linked products. Contra funds also come with risks. Investors may suffer losses if the equities underperform and the contra view does not materialise.

“At a company level, corporate governance issues are something to be very wary of. Also, sometimes sectors and stocks may fall further after we invest. Typically, the markets completely write off a sector towards the fag end of the earnings cycle. So, it needs patience and conviction” Balachandran adds.