Welcome to  PersonalFN’s weekly analysis on diversified equity mutual funds! In this issue, we have analysed SBI Long Term Equity Fund, highlighting its performance, peer comparison, investment strategy, fundamentals, portfolio, and suitability.

SBI Long Term Equity Fund is one of the oldest and most popular Tax Saving Mutual Funds (ELSS) that has shown turnaround performance in the last couple of years to stand strong in the category and reward investors for their patience.

What is the growth of Rs 10,000 invested in SBI Long Term Equity Fund five years ago?

Past performance is not an indicator of future returns
Data as of October 25, 2023 

Incepted over three decades ago in March 1993, SBI Long Term Equity Fund, formerly known as SBI Magnum Tax Gain Fund, is one of the oldest and most popular schemes in the ELSS category. SBI Long Term Equity Fund established itself in the category and dominated the category returns till 2015. However, the fund witnessed a prolonged dull phase between 2016 and 2019 and then in 2021, wherein it stood among the bottom quartile performers as the fund manager’s style of value investing was out of favour.

Nonetheless, the fund has shown a remarkable recovery in the ongoing bull phase to stand strong among its peers. SBI Long Term Fund has benefitted from a rally in stocks in 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 in the last couple of years and it is now the third-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 18.2%, thereby outpacing the benchmark S&P BSE 500 – TRI by around 2 percentage points. An investment of Rs 10,000 in SBI Long Term Equity Fund five years back would have now grown to Rs 23,078 compared to a valuation of Rs 21,048 for a simultaneous investment in its benchmark.

How has SBI Long Term Equity Fund performed in the past?

Scheme Name	Corpus (Cr.)	1 Year	2 Year	3 Year	5 Year	7 Year	Std Dev	Sharpe
Quant Tax Plan	4,925	9.39	11.84	33.85	27.83	20.81	18.76	0.42
Bandhan Tax Advt (ELSS) Fund	5,160	16.27	9.90	29.29	19.45	16.39	16.01	0.43
HDFC TaxSaver	11,502	16.42	12.47	26.33	15.26	12.32	13.47	0.44
Franklin India Taxshield	5,356	15.85	8.22	25.76	16.08	12.81	16.07	0.38
SBI Long Term Equity Fund	16,245	22.95	12.29	25.71	18.20	13.48	14.53	0.41
Mahindra Manulife ELSS Fund	679	14.46	7.81	25.14	17.21	13.55	15.04	0.39
Nippon India Tax Saver (ELSS) Fund	12,734	13.88	7.26	24.91	13.36	9.05	15.40	0.39
Motilal Oswal Long Term Equity Fund	2,577	19.76	9.52	24.46	17.08	14.27	15.89	0.37
DSP Tax Saver Fund	12,086	14.35	6.96	23.85	19.07	14.34	14.66	0.39
Parag Parikh Tax Saver Fund	2,065	15.56	12.15	23.76	—	—	11.26	0.45
S&P BSE 500 – TRI		11.37	5.77	21.06	16.04	13.52	15.06	0.32

The securities quoted are for illustration only and are not recommendatory.
Returns are point to point and in %, calculated using the Direct Plan-Growth option. Those depicted over 1-Yr are compounded annualised.
Data as of October 25, 2023
(Source: ACE MF)
Please note, this table only represents the best-performing funds based solely on past returns and is NOT a recommendation. Mutual Fund investments are subject to market risks. Read all scheme-related documents carefully before investing. Past performance is not an indicator for future returns. The percentage returns shown are only for indicative purposes.

After recording a prolonged underperformance phase between 2016 and 2019, SBI Long Term Equity Fund has bounced back strongly and shown extraordinary performance turnaround in the ongoing bull phase, wherein it has outpaced the benchmark and the category average by a significant margin. In the last 1-year and 2-year periods, SBI Long Term Equity Fund has generated a noticeable lead of around 6-11 percentage points over the benchmark and outpaced many of its peers, thus securing a position among the top performers in the category.

The recent superior performance has helped improve its returns over the short to medium time frames. Over the last 5-year period, SBI Long Term Equity Fund has outpaced the benchmark and the category average by a decent margin, while over the longer 7-year period its performance is nearly in line with the benchmark and the category average.

More importantly, the fund has witnessed significant improvement in its risk-adjusted returns. SBI Long Term Equity Fund has registered lower volatility compared to the benchmark and many of its peers. Furthermore, its Sharpe ratio, a measure of risk-adjusted returns, is much ahead of the benchmark and the category average.

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. SBI Long Term Equity Fund aims to invest across market caps and sectors to benefit from diversification. The fund invests predominantly in large-cap stocks, where it allocates around 55-65% 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 payoff as expected in the short run.

What are the top portfolio holdings in SBI Long Term Equity Fund?

Holding in (%) as of September 30, 2023
(Source: ACE MF) 

SBI Long Term Equity Fund usually holds around 60-65 stocks in its portfolio spread across market caps and sectors. As of September 30, 2023, the fund held 64 stocks in its portfolio with the top 10 stocks accounting for nearly one-third of its assets. Large-cap names such as ICICI Bank, HDFC Bank, L&T, Mahindra & Mahindra, and Bharti Airtel, currently form part of its core holdings, along with a few mid and small-cap names. The fund has limited 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, L&T, Mahindra & Mahindra, Cummins India, ICICI Bank, Tata Motors – DVR Ordinary, and ITC. It gained from its allocation in Bharti Airtel, AIA Engineering, IRB Infrastructure, SBI, Axis Bank, Mahindra & Mahindra Financial Services, Tata Motors, Torrent Power, Cipla, Lupin, and TVS Holdings, among others.

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 fund’s portfolio is skewed towards the Banking & Finance sector, followed by Pharma, Infotech, Auto & Auto Ancillaries, Oil & Gas, Petroleum, Telecom, and Consumption.

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

After witnessing an extended bout of dull phase, SBI Long Term Equity Fund has rebounded with strong gains. Notably, since the fund follows a value style of investing, it may trail its growth-oriented peers during phases where growth stocks are in favour. However, can potentially reward investors reasonably for their patience over the long run.

SBI Long Term Equity Fund maintains a well-diversified portfolio of stocks spread across market caps and sectors. Backed by an experienced fund management team and with a focus on quality stocks having a reasonable margin of safety, SBI Long Term Equity Fund has the ability to deliver robust returns without exposing the portfolio to very high risk.

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

[Read: 3 Best ELSS to Invest in 2023 – Top Performing Tax Saving Mutual Funds in India]

[Read: 7 Top-performing ELSS (Tax Saving Mutual Funds) with High Returns on 10-Year SIP]

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.

This article first appeared on PersonalFN here