SBI Magnum Equity Fund: Strong 10 year performance by one of the oldest mutual funds

SBI Magnum Equity Fund recently completed 25 years and is one of the oldest mutual fund schemes of India outside the Unit Trust of India stable. Over the past 10 years, this large cap fund has delivered very strong outperformance. In fact in 2015, when the average return of large cap funds category and the benchmark Nifty was negative, SBI Magnum Equity Fund gave positive returns. In terms of trailing annualized returns over the past the 5 years, SBI Magnum Equity Fund has outperformed over different time-scales. The table below, shows the annualized trailing returns of SBI Magnum Equity Fund versus large cap funds category over the last 1, 3 and 5 years.

Source: Advisorkhoj Research

Even in terms of annual returns, the fund has outperformed the category in most years, since 2010, a testimony to the consistency of performance of this fund.

Source: Advisorkhoj Research

The chart below shows the NAV movement of the Fund since 2007.

Source: Advisorkhoj Research

Fund Overview

The fund was launched in 1991 and has nearly र 1300 crores of assets under management. The expense ratio of the fund is 2.19%. R. Srinivasan is the fund manager of SBI Magnum Equity Fund. The investment style is growth oriented with a large cap bias. Morningstar has a 4 star rating for this fund.

Portfolio Composition

The portfolio of SBI Magnum Equity Fund is overweight on cyclical sectors like Banking & Finance, Automobile & Auto Ancillaries, Oil and Gas etc, with substantial allocations to defensive sectors to Technology and Pharmaceuticals as well. In a long term secular bull market cyclical sectors are expected to do well. As such, the SBI Magnum Equity Fund has the potential to deliver good returns in the medium to long term, when the market recovers. The portfolio is very well diversified in terms of company concentration. The top 5 companies in the fund portfolio, HDFC Bank, Infosys, Kotak Mahindra Bank, State Bank of India and HCL Technologies account for only 35% of the portfolio value.

Source: Advisorkhoj Research

Risk and Return

In terms of risk measures, the annualized standard deviation of monthly returns of the SBI Magnum Equity Fund is on the lower side, relative to the diversified equity fund category. Despite the slightly lower volatility, on a risk adjusted returns basis, as measured by Sharpe Ratio, the SBI Magnum Equity Fund has outperformed the diversified equity funds category. Higher the Sharpe ratio better is the risk adjusted performance of the fund. See charts below for comparison of volatilities and Sharpe ratios of the SBI Magnum Equity Fund and the diversified equity funds category.

Source: Advisorkhoj Research

The chart below shows the returns of र 5,000 monthly SIP in the fund (growth option) started 5 years back.

Source: Advisorkhoj SIP Calculator

The chart above shows that a monthly SIP of र 5,000 started 5 years back in the SBI Magnum Equity Fund (growth option) would have grown to nearly र 4.1 lacs by January 18 2016, while the investor would have invested in total only about र 3 lacs. These are quite good returns considering the fact, 2 years (2011 and 2015) out of the last 5 years were quite tough for equity markets.

Conclusion

The SBI Magnum Equity Fund has completed 25 years. This fund has delivered good outperformance over the last 10 years or so and the outlook for the future is positive, given that valuation of many large cap stocks are much lower than what they were 1 or 2 years back. Thus fund is suitable for investors with a long time horizon. One can consider investing in the scheme both through the systematic investment plan (SIP) or lump sum route. Investors should consult with their financial advisors, if SBI Magnum Equity Fund is suitable for their investment needs.

Know More: https://www.sbimf.com/Products/EquitySchemes/Magnum_Equity_Fund.aspx

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