SBI Magnum Taxgain - Lost Its Sheen

SBI Magnum Taxgain has failed to outperform the benchmark returns due to its defensive positioning even when the market was rallying

LAUNCHED in March 1993, SBI Magnum Taxgain is one of the oldest and largest tax-saving ELSS schemes in the country with an asset under management of over 6,000 crore. An interesting feature of the fund is its stock picking which is more inclined to companies that have disproportionately large market share.  

One of the top-performing schemes before the dotcom bust, SBI Magnum Taxgain fell head over heals in 2000 and 2001. The net asset value (NAV) of this fund melted, twice that of the benchmark BSE 100 as well as the major market indices during this period. 

   Thereafter, the fund recovered in the subsequent four years, beating the benchmark with good margins. For instance, in 2003, SBI Magnum Taxgain generated 132% return as against 72% returns by the Nifty and the Sensex. However, in 2006-07, SBI Magnum Taxgain grossly failed to meet the investor expectations. In 2006, the fund returned just about 44%, marginally outperforming its benchmark's returns of about 41% while in 2007, the year marked by market momentum, it returned just about 55% against BSE-100's 60% gains.

   The fund's NAV declined by 55% in 2008 following the subprime crisis. This fall was though in line with the major market indices. Since then, the fund has given mediocre returns. The fund's performance in the 2010 bull-run was average, with 13% returns. The BSE 100 gained 16% that year.

For a fund with a size as large as 6,000 crore, SBI Magnum Taxgain's portfolio is well diversified to incorporate an average of about 60 stocks across sectors. While the fund has a multi-cap approach, it is clearly biased towards large-cap stocks. Nearly 70% of its equity portfolio is invested in the large caps. Some of the prominent largecap stocks that the fund has been invested in for more than three years are Bhel, M&M, ONGC, SBI, TCS, L&T and JP Associates.

   For the sectoral allocation, the fund has a reasonable exposure in healthcare and FMCG sectors, with an exposure of 10% and 7%, respectively. Some of the stocks like Cadila, Nestle and Lupin had been identified by the fund at an early stage and it has reaped handsome benefits from these investments. However, compared to the benchmark BSE 100, the fund is underweight on the financial sector which was one reason for the fund's underperformance in 2010. Some of the sectors that the fund has recently decreased its exposure include capital good and construction due to an increase in raw material costs in these sectors. It maintains 3% of AUM in cash.

A decent performance history and the growing asset base are enthusing for investors. However, over the past few years, it has developed itself into a defensive investment and therefore, failed to outperform the benchmark returns even when the market was rallying. Untill SBI Magnum Taxgain moves out of its defensive positioning, investors can expect consistent but not outstanding returns.

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