Investment & Financial Planning

Can NRIs Invest In Contra Funds? An Smart Approch To Investing

NRIs Invest In Contra Funds

Contra funds are a type of equity mutual fund that follow a contrarian investment strategy. These funds invest in stocks that are undervalued or currently out of favour, with the expectation that they will perform well in the future.

As per SEBI guidelines, contra funds must invest at least 65% of their total assets in equity and equity-related instruments.

Simply put, contra fund managers go against prevailing market trends and invest in fundamentally strong stocks that are temporarily ignored by the market.

Key Takeaways
  • NRI investors who understand market cycles and stock fundamentals can consider investing in contra funds based on their risk appetite.
  • Contra funds are equity-oriented mutual funds focusing on undervalued opportunities.
  • These funds follow a contrarian strategy, investing against market sentiment.
  • They offer long-term growth potential, but may underperform in the short term.
  • NRIs can invest through NRE or NRO accounts, subject to RBI and FEMA guidelines.

Why Contra Funds Attract NRIs

Contra funds are attracting NRIs for the following reasons:

Contra Funds Attract NRIs

Potentially High Returns

Contra funds invest in undervalued stocks that may deliver high returns when market sentiment shifts.

Long-Term Wealth Creation

Since most NRIs invest with a long-term horizon, contra funds align well with wealth creation strategies.

Entry at Lower Valuations

These funds provide exposure to strong companies at discounted prices, increasing upside potential.

Hedge Against Market Volatility

Contra funds help balance portfolios by investing in ignored or pessimistic sectors, offering diversification benefits.

Portfolio Diversification

For NRIs, contra funds provide exposure to India’s undervalued market segments, enhancing global portfolio diversification.

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Best Contra Funds for NRIs

The following are the contra funds for NRIs.

However, please note that fund growth potential is expected to change as market sentiment shifts, so it is better to always seek advice from NRI-specific portfolio or fund managers to make an informed decision.

Serial Number Fund 1 Year Return 3 Year Return TER AMC
1 Invesco India Contra Growth Direct Plan 10.45% 19.33% 0.56% Invesco
2 SBI Contra Growth Direct Plan 4.31% 24.11% 0.60% SBI
3 Kotak India EQ Contra Growth Direct Plan 3.37% 19.85% 0.60% Kotak

Note: Returns are subject to market risks. Always consult a financial advisor.

Please note that NRIs can invest in contra funds using their NRO bank account and NRE bank account

Risks of Contra Funds for NRIs

Contra funds in India are well known for their high risk, but with significant risks, they also offer great benefits.

NRIs can benefit from contra funds if they overcome the following risks:

The Opportunity Cost

Contra funds may take years to generate returns, leading to potential opportunity loss compared to other investments.

Possibility of Losses

If undervalued stocks fail to recover, investors may face capital losses.

Dependence on Fund Manager Expertise

Performance depends heavily on the fund manager’s research and decision-making ability.

Experts suggest allocating not more than 10% of your portfolio to contra funds.

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Taxation for NRIs

DTAA benefits may help reduce double taxation.

Should NRIs Invest in Contra Funds?

Yes, if you:

  • Have a long-term investment horizon
  • Can handle high risk and volatility
  • Believe in value investing strategies

Should NRIs Invest In Contra Funds

Not suitable for:

  • Investors seeking stable or predictable returns
  • Short-term investment goals

The Bottom Line

Contra funds are ideal for investors who can stay patient during market downturns and trust long-term value recovery.

If you are an NRI looking to diversify into undervalued Indian equities, contra funds can be a strategic addition to your portfolio.

So, if you have all these skills but need a guiding light to help you make a better-informed decision, then Savetaxs is the name you can trust. 

We have been helping NRI investors from 90+ countries diversify their portfolio in the Indian market. Our NRI contra fund investors and portfolio managers will provide you with a risk-proof contra fund strategy for NRIs and guide you through current and future market conditions so you can make an informed decision.

Connect with us today as we serve our clients 24/7 across all time zones.

Note: This guide is for information purposes only. The views expressed in this guide are personal and do not constitute the views of Savetaxs. Savetaxs or the author will not be responsible for any direct or indirect loss incurred by the reader for taking any decision based on the information or the contents. It is advisable to consult either a CA, CS, CPA or a professional tax expert from the Savetaxs team, as they are familiar with the current regulations and help you make accurate decisions and maintain accuracy throughout the whole process.

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Frequently Asked Questions

A contra fund invests in undervalued stocks by going against market trends to generate long-term returns.

Yes, NRIs can invest via NRE/NRO accounts, subject to RBI regulations.

Yes, they carry high risk due to their contrarian strategy and long holding period.

Yes, they are taxable and are taxed like any other equity mutual fund.

Yes. If you have a high-risk appetite as an investor, you must invest in a contra mutual fund.