SBI Long Term Equity Fund: Exhibiting Extraordinary Performance Turnaround

SBI Long Term Equity Fund is one of the oldest and most popular schemes in the Tax Saving Mutual Fund (ELSS) category that follows a multi-cap strategy to identify opportunities across the market spectrum. It has shown a turnaround performance in recent years to stand strong in the category and reward investors for their patience.

Incepted more than three decades ago in March 1993, SBI Long Term Equity Fund, previously known as SBI Magnum Tax Gain Fund, is one of the oldest and widely acclaimed schemes within the ELSS category. The fund strategically manages a well-diversified portfolio of stocks across sectors by adhering to a value-conscious investment approach. SBI Long Term Equity Fund carved out a significant presence in the category and dominated the category returns till 2015. However, the fund went through an extended lacklustre phase between 2016 and 2019 and again in 2021, finding itself among the bottom quartile performers. This can be attributed mainly to the fund manager's value investing style being out of favour.

Nevertheless, the fund has staged an impressive comeback in the ongoing bull market, establishing a strong position among its peers. SBI Long Term Equity Fund has capitalised on the rally in stocks within the Finance, Engineering, and PSU segments. It now stands among the top performers in the category across most time frames and is much ahead of the benchmark. This has resulted in massive growth in its AUM over the past few years, positioning it as the second-largest scheme in the ELSS category. Its fund manager Mr Dinesh Balachandran prefers investing in undervalued stocks and thus, the fund may underperform when growth-oriented stocks are in favour.

In the last five years, SBI Long Term Equity Fund grew at a compounded annualised growth rate (CAGR) of nearly 25%, thereby outpacing the benchmark BSE 500 - TRI by around 5 percentage points. An investment of Rs 10,000 in SBI Long Term Equity Fund five years back would have now tripled to Rs 30,528 compared to a valuation of Rs 24,915 for a simultaneous investment in its benchmark.

Following a prolonged period of underperformance from 2016 and 2019, SBI Long Term Equity Fund bounced back and staged a remarkable comeback, exhibiting an extraordinary performance turnaround in the current bullish phase. During this period, it has surpassed the benchmark and the category average by a significant margin. On a rolling return performance in the last 2-year periods, SBI Long Term Equity Fund has generated a remarkable lead of around 9.8 percentage points over the benchmark and 8.5 percentage points over the category average, thus securing a position among the top performers in the category.

The recent superior performance has helped improve its returns over the medium to long-term time frames. Over the last 5-year and 7-year period, SBI Long Term Equity Fund has registered a decent lead over the benchmark, and has outpaced most of its peers.

More importantly, the fund has witnessed significant improvement in its risk-adjusted returns. SBI Long Term Equity Fund registered volatility nearly in line with the benchmark and the category average. Meanwhile, its Sharpe ratio, a measure of risk-adjusted return, outpaces the benchmark and ranks among the best in the category.

[Read: Why ELSS Is Your Best Choice to Build Wealth and Save Tax]

What is the investment strategy of SBI Long Term Equity Fund?

Being an ELSS, SBI Long Term Equity Fund is mandated to invest a minimum of 80% of its assets in equity and equity-related instruments and aims to invest across market caps and sectors to benefit from diversification. The fund invests predominantly in large-cap stocks, where it allocates around 50-60% of its assets, while the balance is allocated in mid-cap and small-cap stocks.

SBI Long Term Equity Fund follows a mix of the 'top-down' and 'bottom-up' approach to pick stocks for the portfolio. The fund focuses on securities with high margin of safety. For this purpose, SBI Long Term Equity Fund follows a value bias to pick stocks trading below their intrinsic value. It also lays emphasis on sectoral themes that are expected to grow over the medium to long term. The fund prefers to hold most of its stocks with a long-term view even if they fail to pay off as expected in the short run. SBI Long Term Equity Fund's portfolio turnover is usually under 20%, signifying the high conviction the fund manager has in the portfolio holdings.

SBI Long Term Equity Fund usually holds around 60-65 stocks in its portfolio spread across market caps and sectors. As of May 31, 2024, the fund held 61 stocks in its portfolio with the top 10 stocks accounting for 35.3% of its assets. The core holdings of the fund comprise mainly large-cap names along with a few mid and small-cap names such as GE T&D India, HDFC Bank, Torrent Power, Mahindra & Mahindra, and ICICI Bank. The fund usually limits allocation in each stock to under 5%. SBI Long Term Equity Fund follows a 'buy-and-hold' investment strategy. Thus, most of the stocks in its holdings have been part of its portfolio for many years now.

In the last two years SBI Long Term Equity Fund benefitted the most from its prominent exposure to GE T&D India, Cummins India, Mahindra & Mahindra, and L&T that contributed around one-third to its absolute gains. It also gained from its allocation to Torrent Power, Tata Motors - DVR Ordinary, SBI, ICICI Bank, Lupin, Bharti Airtel, TVS Holdings, Multi Commodity Exchange, and Punjab National Bank, among others.

Although SBI Long Term Equity Fund favours cyclical sectors that may benefit from an upcycle in the domestic economy, it also holds substantial weightage in defensive and sensitive sectors. The top 5 sectors cumulatively account for nearly 49% of its assets. Its portfolio is skewed towards the Banking & Finance sector, that forms 23.2% its portfolio, along with diversification to Engineering, Oil & Gas, Auto, Pharma, Infotech, Petroleum, Power, Consumption, and Telecom, among others.

Is SBI Long Term Equity Fund suitable for my investment goals and risk tolerance?

SBI Long Term Equity Fund refrains from taking concentrated bets on any specific stocks or sectors. Instead, it usually maintains a diversified portfolio of stocks spread across market caps and sectors aiming to capitalise on the various opportunities present in the market. In times of overheated market conditions, SBI Long Term Equity Fund may hold higher cash balance and prefer waiting for the market valuations to turn attractive.

SBI Long Term Equity Fund maintains a substantial allocation to mid-cap and small-cap stocks, which can lead to significant gains during rally in broader markets. However, it also means that the portfolio may experience higher volatility during extreme market conditions. Nevertheless, the fund's bias towards large caps can offer stability and steady growth during highly volatile and uncertain market conditions.

SBI Long Term Equity Fund is suitable for investors looking for a diversified Tax Saving Mutual Fund (ELSS) with an investment horizon of at least 5 years.

Watch this video to check out the best Tax Saving Mutual Funds (ELSS) of 2024:

Note: This write up is for information purpose and does not constitute any kind of investment advice or a recommendation to Buy / Hold / Sell a fund. Returns mentioned herein are in no way a guarantee or promise of future returns. As an investor, you need to pick the right fund to meet your financial goals. If you are not sure about your risk appetite, do consult your investment consultant/advisor. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully. Registration granted by SEBI, Membership of BASL and certification from NISM no way guarantee performance of the intermediary or provide any assurance of returns to investors.

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DIVYA GROVER is the co-editor for FundSelect, the flagship research service of PersonalFN. She is also the co-editor of DebtSelect. Divya is an avid reader which helps her in analysing industry trends and producing insightful articles for PersonalFN’s popular newsletter – Daily Wealth letter, read by over 1.5 lakh subscribers.
Divya joined PersonalFN in 2019 and has since then used stringent quantitative and qualitative parameters to analyse funds to provide honest and unbiased research to investors. She endeavours to enable investors to make an informed investment decision and thereby safeguard their wealth.

Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.
This article is for information purposes only and is not meant to influence your investment decisions. It should not be treated as a mutual fund recommendation or advice to make an investment decision in the above-mentioned schemes.

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