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- SBI Magnum Tax Gain Scheme
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SBI Magnum Tax Gain Scheme aims for appreciation of capital via investments in a portfolio made up of equities, fully convertible debentures, cumulative convertible preference shares, and bonds.
The scheme also offers deductions on the investment under Section 80 C of the Income Tax Act, 1961. Additionally, it aims to periodically distribute income as per availability of surplus which can be distributed.
Presented below is a comprehensive review of SBI Magnum Tax Gain Scheme. It offers all the relevant information needed by you so that you can make an informed decision about whether to buy, sell, or hold this fund.
Basic costs and other information
SBI Magnum Tax gain was launched on Mar 31, 1993. It has continued to provide returns for nearly 25 years and hence has remained popular with investors. As of Jul 31, 2017, this equity-focused fund has assets of INR 5,948 crores. The minimum required investment for lump sum investment route is INR 500, and also INR 500 in case of SIP or Systematic Investment Planning method.
The expense ratio as of Jul 31, 2017 is 2.00 percent. As of 16th Aug 2017, if investors redeem their fund investment within a period of one year or 365 days of holding it, then the exit load is 1%.
Dinesh Balachandran is the fund manager since September 2016. His educational qualifications include B.Tech from IIT-B and M.S. from MIT, USA. He is also a CFA. Before joining SBI Funds Management Pvt. Ltd., Mr. Balachandran was working for Fidelity Investments, USA. Other funds managed by him include SBI Dynamic Asset Allocation Fund – Regular Plan.
Allocation of the fund
As of July 31, 2017, the fund’s allocation stands as 96.03 percent in equities, 3.59% in Money Market, 0.25% in Cash/Call, and 0.13 in Others.
As of July 31, 2017, the top 6 sectors that the fund’s portfolio focuses on include Banking/Finance (34.27%), Engineering (9.32%), Automotive (8.20%), Oil & Gas (7.14%), Tobacco (5.10%), and Cement (4.20%).
As of July 31, 2017, the top 6 stocks that make up the fund portfolio include ICICI Bank (7.27%), SBI (6.12%), Reliance (5.11%), ITC (5.10%), HDFC Bank (4.02%), and Mahindra & Mahindra (3.54%).
As of Aug 24, 2017, SBI Magnum Tax gain has produced an 11.18 percent return on investment in the last 10-year period. This shows that the fund’s yields were lower than the category average of 11.61 percent during the same period. From the time of launch the fund has delivered 17.26 percent per annum returns.
In the past 1, 3, and 5 years, the fund has shown 13.97, 11.04, and 17.44 percent returns. The 3-year returns of the fund are thus more than 3% points lower than the category returns. On a 5-year period, the performance of the fund vis-à-vis the category is marginally poorer by about 1% point.
If the topmost holdings are taken into consideration, then it can be said that the SBI Magnum Tax gain heavily leans towards the banking and finance sector. As per data of the past 3 years, the fund’s standard deviation, i.e., the volatility of the returns of the fund vis-à-vis its average, is 13.43% as of 31st July 2017. This is lower than the category average which is 14.25% for the same period.
When the returns of SBI Magnum Tax gain are compared with its peers during the past 5 year period, then at 17.44 percent returns it has not done as well as other similar funds like Aditya Birla Sun Life Tax Plan (20.90%); Aditya Birla Sun Life Tax Relief 96 (21.68%); Franklin India Taxshield Fund (19.35%); and Tata India Tax Savings Fund (20.92%). When looking at the fund’s returns from a 3-year perspective, then other funds in the category show returns which are also better than SBI Magnum Tax gain returns of 11.04% by 3 to 8 percentage points.
Investors currently have many different options of tax saving instruments. Mutual funds via ELSS or equity linked savings scheme offer an option to benefit from growth potential associated with equity markets while availing of tax advantages. It may be noted that investments in ELSS are eligible for tax benefits of up to INR 1, 50,000 annually from gross total income.
As mentioned above, the objective of SBI Magnum Tax gain scheme is to provide the gain of investing in a portfolio made of equities, while getting tax deductions on such investments. Thus, investors who want to gain the dual benefit of investment in equity markets along with saving taxes should go for this scheme.
SBI Magnum Tax gain has lagged behind similar funds across varied time frames. The underperformance can be attributed to the preference of the fund to large caps as compared to its category peers which have gained from increased exposure to mid caps. The average market capitalization of the fund’s portfolio is more than the category average by INR 20,000 crores.
SBI Magnum Tax gain is now managed by a new fund manager who took reigns of the fund only about 10 months ago. The new fund manager has a strict value bias and does not deviate from increased safety margin while picking the stocks. The portfolio has good exposure in its peak bets due to preference of the fund manager to companies which offer cushion against bear markets. This approach has resulted in sharp periods of underperformance in the past. However, in the long-run conservative investors are sure to reap rich rewards.
Should I sell, buy, or hold?
SBI Magnum Tax Gain Scheme has consistently struggled to give good performance across the time period. Also the fund manage is new and doesn’t have great track record. Exit the Fund if the holding period is more than 3 years.
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Low Expense Ratio
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