| Magnum Taxgain has
consistently yielded superior returns over the past couple of years.
The fund has capitalized on the bullish trend in the markets in 2003
and 2004; its shift to mid-cap stocks has also paid rich rewards.
The scheme has generated 13.8% annualized return since it turned
open-ended in November 1999 against 9.2% annualized return by its
benchmark, BSE 100 over the same period. Head of Equity at SBI
Mutual Fund and Fund Manager for the scheme Sandip Sabharwal
attributes this performance to the superior stock selection with a
long-term view on investments.
However,
the scheme's performance had suffered severe setback through 2000
after being one of the top performers in 1999. It not only
under-performed the broad market indices, but also the majority of
tax-saving schemes from other mutual funds. On this, Sabharwal says,
“The scheme suffered in the relevant period due to an overexposure
into the TMT segments. However subsequent to the poor performance
during that period significant and substantive risk management
practices have been put into place and now we operate with stock
specific as well as industry specific limits. However except for
that two year period the scheme has done very well and we expect to
continue to outperform going forward.”
Experts
believe that the scheme will become even more attractive now with
the Finance Minister's budget proposal to
remove the cap on investment
in tax saving instruments, allowing an investment
of Rs 1 lakh in
equity linked saving schemes, ELSS. Sabharwal says, “We believe
this will be a big driver for flows into the
equity markets. Earlier the cap was at Rs 10000, so it
really did not make sense for a lot of people to invest
this small amount and then monitor the performance.
However with Rs 1 lakh limit, we are likely to
see huge inflows into this category of schemes from April
1st onwards.”
Commenting
on the advantages of investing in ELSS, Sabharwal says, “If you
see ELSS schemes across fund
houses they are one of the
best performing schemes mainly
due to stable long-term funds where the fund manager
can also take a long-term view. The other advantages
of no long term capital gains tax and tax free
dividends also is a big positive as all the returns
that an investor makes out of this scheme are free
of tax which is not so for most asset classes today.”
Meanwhile,
the government is mulling over the proposal to tax the maturity
value of the tax saving instruments. When asked about the impact of
the same on the scheme, Sabharwal said, “The Finance Minister has
proposed the EET scheme but it is yet to be implemented. Even if it
gets implemented it will be uniform across tax saving asset classes
and as such will not have a significant impact on the inflows.”
| Table I
|
| Date |
Div (Rs/unit) |
Mar 1995
Dec 1999
Sep 2003
Dec 2003
Mar 2004
Oct 2004 |
0.80
2.50
1.50
1.50
1.50
2.70
|
The fund’s NAV touched a 52-week
high of Rs 39.86 on March 4, 2005 and has since declined by 6.5%
to Rs 37.26 on March 28, 2005. The scheme has till date paid out
six dividends (refer Table I for dividend history).
The scheme’s absolute return
across various time periods compared with the return on the BSE
100 for the same period are as given in Table II and Table III
gives the value (as on March 28, 2005) of Rs 10,000 invested in
the scheme at different periods of time.
| Table II
|
|
Period
|
BSE-100
|
Abs.
Returns
|
|
Inception
|
241.2%
|
443.1%
|
| Since turned
open-ended |
60.9%
|
100.7%
|
|
5 years
|
13.5%
|
-8.2%
|
|
3 years
|
103.0%
|
286.0%
|
|
2 years
|
126.9%
|
360.5%
|
|
1 year
|
18.4%
|
86.5%
|
|
6 mths
|
17.3%
|
50.7%
|
|
3 mths
|
-2.1%
|
14.3%
|
BACKGROUND
SBI Mutual Fund launched the
Magnum Taxgain in April 1993 as a close-ended scheme and was
later converted into an open-ended fund from November 1999. It
is an Equity Linked Savings Scheme, ELSS, which aims to provide
medium to long-term growth of capital along with income tax
rebate. Currently, investment of upto Rs 10,000 annually in this
fund entails a tax rebate under Section 88 (2) (xiii b) and
carries a three-year lock-in period.
Entry into the fund requires a
minimum investment of Rs 500. The entry load is 2.25% and exit
load is nil. Securities Transaction Tax of 0.15% is applicable
at the time of repurchase irrespective of the amount of
investment ad date of investment.
| Table III
|
| Period |
Invested
on
|
Value
|
|
Inception
|
31-Mar-93 |
Rs54,315 |
|
Since
turned open-ended
|
10-Nov-99
|
Rs20,066
|
|
5 years
|
29-Mar-00
|
Rs9,178
|
|
3 years
|
28-Mar-02
|
Rs38,599
|
|
2 years
|
28-Mar-03
|
Rs46,051
|
|
1 year
|
29-Mar-04
|
Rs18,651
|
|
6 mths
|
29-Sep-04
|
Rs15,073
|
|
3 mths
|
29-Dec-04
|
Rs11,433
|
PORTFOLIO ANALYSIS
Magnum Taxgain Scheme has
portfolio largely invested in mid-cap stocks. Barring Gujarat
Ambuja Cement, it has weeded out even the few large-cap stocks
that it held last year. The scheme invests with a bottom up
approach with certain sectoral caps. Its current turnover
ratio is close to 110%, says the fund manager.
The scheme's strategy to stick
with quite a few of its midcap stocks in the top ten holdings
— Thermax, Praj, Crompton, KPIT, Sintex, and United
Phosphorus — for several months now, has paid off.
Besides this, Magnum Taxgain is
heavily skewed to Electrical Equipment stocks which together
account for almost 32% of the net assets. Sabharwal says,
“Actually the companies into which we have invested in
belong to different product classes and each is different in
its product profile. We are positive on this sector due to the
strong capital investment cycle which has started in the
economy and also due to bright export prospects.”
The scheme completely
off-loaded its investments in the auto, services and utility
sector over the last four months, while hiked its exposure to
the construction and engineering sector. Over the last three
months, the scheme’s stocks list remained almost unchanged
except for the introduction of Bharati Shipyard in December
2004 and exiting Blue Dart Express, and Jubilant Organosys.
Magnum Global Fund’s AUM has
soared by 34% over the last six months to Rs 75.16 crore in
February 2005.
|
