Strong SIP returns from SBI Magnum Taxgain Scheme 1993

SBI Magnum Taxgain Scheme 1993 is one of the oldest mutual fund Equity Linked Savings Schemes (ELSS). Section 80C of Income Tax Act 1961 allows taxpayers to claim deduction equal to their investment in ELSS, from the taxable incomes, up to a cap of Rs 1.5 Lakhs in a financial year. Though ELSS investments are subject to market risks, they are one of the best tax saving (80C) investment options because they offer the highest potential returns, superior liquidity (shortest lock-in period) and one of the friendliest tax treatments of the maturity amount. Taxpayers can get tax savings of up to Rs 46,800 by investing in ELSS mutual funds.

SBI Magnum Taxgain Scheme 1993 was launched in 1993 and has given 16.3% CAGR returns since inception. Rs 1 Lakh invested in SBI Magnum Taxgain Scheme 1993 at the time of its launch would have grown to nearly Rs 50 Lakhs by now. The returns of SBI Magnum Taxgain 93 scheme since inception is a testimony to the wealth creation potential of ELSS over long investment tenors. It also reinforces our stated view on the investment tenors for ELSS mutual funds which is that, you should not redeem your ELSS investments immediately after the lock-in period is over but continue to hold it till you reach your financial goals, as mentioned a number of times in our blog.

We have also discussed a number of times in our blog that Systematic Investment Plan (SIP) is one of the best ways of investing for tax savings into ELSS mutual funds. By delaying tax savings (80C) investments till the end of the year, investors miss out on returns or capital appreciation which takes place over the year. By investing through SIP, you will be able to take advantage of price gains throughout the year and enhance your returns considerably over long investment time frames (please see our blog post, Is it better to invest in tax saving mutual funds through lump sum or SIP). SIP also enables investors to take advantage of stock market volatility through Rupee Cost Averaging. SIP is also a disciplined and convenient form of investing; it will ensure that you will not miss out on your tax saving goal.

SBI Magnum Taxgain Scheme 1993 has given strong SIP returns over various long term investment tenors. The chart below shows the returns of Rs 8,000 monthly SIP in this ELSS over the last 10 years.

Source: Advisorkhoj Research

With a cumulative investment of Rs 9.6 Lakhs during this period, you would have been able to save up to Rs 2.9 Lakhs in taxes. In addition, you would have made a profit of Rs 8.1 Lakhs on your investment. Your current investment value would have been Rs 17.42 Lakhs. The SIP returns (XIRR) over the last 10 years was nearly 12%.

We also looked at SIP returns of SBI Magnum Taxgain Scheme 1993 over different SIP tenors and the results are equally impressive. The chart below shows the returns of Rs 8,000 monthly SIP in this ELSS over the last 7 years.

Source: Advisorkhoj Research

With a cumulative investment of Rs 6.7 Lakhs during this period, you would have been able to save up to Rs 2.9 Lakhs (for investors in the highest tax bracket) in taxes. In addition, you would have made a profit of Rs 3.3 Lakhs on your investment. Your current investment value would have been over Rs 10 Lakhs. The SIP returns (XIRR) over the last 7 years was nearly 11.2%.

We tried to analyze the performance of SBI Magnum Taxgain Scheme 1993 over the last 10 years in different market conditions using our Market Capture Ratio tool; please see the results of our analysis below.

Source: Advisorkhoj Market Capture Ratio

You can see that the scheme was able to capture the market upside to a large extent and at the same time, was able to limit downside risks over the last 10 years. We have discussed earlier in our blog that a Capture Ratio of more than 1 is the hallmark of a well managed scheme.

About SBI Magnum Taxgain Scheme 1993

The scheme has nearly Rs 6,500 Crores of Assets under Management (AUM). The expense ratio of the scheme is 2.05%. S&P BSE 500 TRI is the scheme benchmark. The minimum investment amount in this scheme is Rs 500 and the minimum top up amount is also Rs 500. Minimum SIP investment amount in this scheme is Rs 500. Dinesh Balachandran is the fund manager of this scheme. The scheme has a large cap bias; more than 70% of the scheme portfolio in value terms is comprised of large cap stocks. The portfolio turnover is 62%. The scheme has an annual dividend option. The dividend option of the scheme has been paying regular dividends to investors every year since 2003.

Conclusion

SBI Magnum Taxgain Scheme 1993 has completed 25 years since its launch. It has a fantastic long term track record of wealth creation. The scheme is suitable for tax savings and long term wealth creation. In our view investors should be ready to remain invested in this scheme for at least 5 years to get the best returns; the longer they remain invested in the scheme, the better returns they are likely to get. You can invest in this scheme in both lump sum and SIP; in order to remain disciplined in tax planning, it is better to invest through SIP. Investors should consult with their financial advisors if SBI Magnum Taxgain Scheme 1993, an ELSS mutual fund is suitable for their tax savings investment planning.