As we enter the last quarter of the financial year we need to look at some investment options that would help us reduce our tax liabilities.
Ritik Nagalia
Name: SBI Magnum Tax Gain Scheme 93
Type: Equity tax saving.
Fund manager: Sanjay Sinha and Gopal Agrawal
Launch date: March 31, 1993
As we enter the last quarter of the financial year we need to look at some investment options that would help us reduce our tax liabilities. Even though tax planning should ideally be a year-round event individuals tend to keep postponing it till the very end.
Currently there are number of products such as public provident fund, national saving certificate, employee’s provident fund, infrastructure bonds, five-year bank deposits etc that fall under provide tax relief under Section 80C. Most of these options generate 8-12% returns and have lengthy lock-in periods.
In recent years, equity linked savings schemes (ELSS) from mutual funds, popularly known as tax saving mutual funds, have caught investor’s fancy because of the kind of returns these schemes have generated. At the peak of a bull run, why would any investor invest in a fixed instrument when a tax saving mutual fund has the potential to provide around 30-40% annualised returns.
Within the category of schemes, SBI Magnum Tax Gain Scheme 93 has been an outperformer. It is an ideal instrument to save tax as well as to stay invested in equity mutual funds. It has delivered phenomenal returns, surpassing its benchmark and peer group average by a huge margin.
The objective of the scheme is to deliver the benefits of investing in a portfolio of equity shares while offering tax rebate under the Income Tax Act, 1961. It also seeks to distribute income periodically depending on the distributable surplus.
The scheme was launched as a closed ended scheme and was scheduled to be redeemed on March 31, 2003, but it was later converted into an open-ended scheme. Sanjay Sinha and Gopal Agrawal, who currently manage the scheme, have kept the good performance going, after the exit of the star fund manager, Sandip Sabharwal.One clear change is the high allocation to large caps than was the case earlier.
The duo also manages SBI Magnum COMMA Fund and SBI Magnum Sector Umbrella, which have also performed pretty well.
SBI Magnum Tax Gain’s has topped the charts in terms of two, three and five year returns. Historically, the scheme has always been among the top 3 schemes in its category.
The fund strives to have a healthy mix of large-cap and mid-cap stocks. Currently0 there are 57 scrips in the portfolio, with Infosys Technologies accounting for 4.8% of the net assets.
The top 10 stocks account for only 35% of the total net assets, indicating how well the portfolio is diversified. The other top holdings are India Cement, JP Associates, Crompton Greaves and Reliance Communication Ventures.
The assets allocation pattern reveals that the fund manager has invested 91.74% of the corpus in equity, 0.82% in debt and 7.44% in cash and money market instruments.
The top 5 sectors account for 50.15% of the portfolio. Technology with 18.83% of the total investment is the biggest sector. The average allocation to the sector in the last year stood at 13.77%.
Some of the IT companies the schemes seems to be big on are Infosys, Satyam Computer, KPIT Cummins Infosystems and Subex Systems. The cement sector comes in second and accounts for 14.77%.
With a three-year lock-in, as is the feature of all ELSS schemes, it helps the fund manager to invest in a single stock for a longer period without worrying too much about redemption pressures. The fund added Parsavnath Developers to its portfolio in November. Some of the existing holdings which saw further buying were KEC International, Shree Cements and Blue Dart Express. The fund manager sold Satayam, KPIT Cummins and Apollo Tyres.
The volatility of the scheme is low as compared with its peers. The fund also has low market sensitivity compared to its peers and is, therefore, less risky. Investors who want to avail the tax benefit along with the capital appreciation associated with equity investments can stay invested for a long term.
By arrangement with mutualfundsindia.com, a unit of Icra Online
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