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SBI Magnum Children's Benefit Fund - Investment Plan: Trying to Encompass Multi-Asset Approach
Sep 15, 2020

It has become difficult for average-income earners to provide children with a good education in the past couple of years due to the inflating education costs. In these socio-economic times and turbulent market conditions, making smart investment choices are increasingly challenging. When it comes to child-investment plans, choosing the right one from the plethora of options can be confusing.

So SBI Mutual Fund has launched a solutions-oriented scheme SBI Magnum Children's Benefit Fund - Investment Plan that will help investors to invest for their child's future.

SBI Magnum Children's Benefit Fund-Investment Plan is an open-ended scheme with a lock-in for at least 5 years or till the child attains the age of majority (whichever is earlier). The Scheme will allocate its assets mainly to equity and a small portion will be allocated to gold for hedging purpose as a portfolio diversifier.

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Since the scheme's dominantly skewed towards equities from all sectors and across market cap along with a lock in period, SBI Magnum Children's Benefit Fund-Investment Plan is a high-risk investment scheme.

Table 1: SBI Magnum Children's Benefit Fund - Investment Plan

Type An open-ended fund for investment for children having a lock-in for at least 5 years or till the child attains age of majority (whichever is earlier). Category Solution Oriented Scheme - Children's Fund
Investment Objective To generate long term capital appreciation by investing predominantly in equity and equity related securities of companies across sectors and market capitalizations. The scheme will also invest in debt and money market instruments with an endeavour to generate income.
However, there is no guarantee or assurance that the investment objective of the scheme will be achieved.
Min. Investment Rs 5,000 and in multiples of Re 1 thereafter Face Value Rs 10 per unit
Plans
  • Regular
  • Direct

Options
  • Growth

Entry Load Nil Exit Load

With respect to units not subject to lock-in period and the holding period is less than 3 years:

  • 3% for redemption/switch out on or before 1 year from the date of allotment
  • 2% for redemption/switch out after 1 year and up to 2 years from the date of allotment
  • 1% for redemption/switch out after 2 years and up to 3 years from the date of allotment

Nil for redemption or switch-out after 3 years from the date of allotment.

Fund Manager
  • Mr R Srinivasan - Equity
  • Mr Dinesh Ahuja - Debt
  • Mr Mohit Jain - Investments in foreign securities of the Scheme

Benchmark Index CRISIL Hybrid 35+65 -Aggressive Index
Issue Opens: September 08, 2020 Issue Closes: September 22, 2020
(Source: Scheme Information Document)

How will the scheme allocate its assets?

Under normal circumstances, the scheme's asset allocation will be as under:

Table 2: SBI Magnum Children's Benefit Fund-Investment Plan's Asset Allocation
Instruments Indicative Allocations
(% of Net Assets)
Risk Profile
High/Medium/Low
Minimum Maximum
Equity and Equity related instruments including equity ETFs 65 100 High
Debt including debt ETFs and money market instruments 0 35 Low to Medium
Units issued by REITs and InVITs 0 10 Medium to High
Gold ETFs 0 20 Medium to High

The scheme may seek to invest in foreign securities including ADR/GDR/Foreign equity and overseas ETFs and debt securities subject to Regulations. Such investment may not exceed 35% of the net assets of the scheme. Exposure to equity derivatives (including writing covered call options in line with SEBI guidelines) may be to the extent of 100% of the net assets. Exposure to domestic securitized debt may be to the extent of 20% of the net assets. The scheme may invest in debt derivatives to the extent 20% of the net assets of the scheme.

(Source: Scheme Information Document)

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What is the Investment Strategy?

The Scheme seeks to invest in equity and equity related instruments, debt, Money Market Instruments including derivative. The investment strategy for Equity and Debt are as follows:

Equity: The scheme will invest in a well-diversified portfolio of equity & equity related securities. The fund manager while selecting stocks will focus on the fundamentals of the business, the quality of management, the financial strength of the company, market leadership etc. The scheme will invest across sectors without any market cap or sectoral bias.

Debt: The Scheme will invest in a diversified portfolio of high quality debt and money market instruments. The fund manager will allocate the assets of the scheme taking into consideration the prevailing interest rate scenario, yield curve, yield spread, and the liquidity of the different instruments.

The portfolio duration and credit exposures will be based on a thorough research of the general macroeconomic condition, political and fiscal environment, inflationary expectations, and other economic considerations.

Who will manage the SBI Magnum Children's Benefit Fund - Investment Plan?

SBI Magnum Children's Benefit Fund - Investment Plan will be co-managed by Mr Rama Iyer Srinivasan, Mr Dinesh Ahuja, and Mr Mohit Jain. Mr Rama Iyer Srinivasan will manage equity portion, Mr. Dinesh Ahuja will manage Debt portion, and Mr. Mohit Jain shall be the dedicated fund manager for managing overseas investments under the scheme.

Mr Rama Iyer Srinivasan has done his MCom and MFM and has experience of 28 years in equities. Prior to joining SBI Funds Management Pvt. Ltd., Srinivasan was with Future Capital Holdings, the erstwhile asset management and financial services entity of the Future Group, where he headed 'Public Markets'. Prior to that, he has worked with several organizations including Principal PNB AMC, Imperial Investment Advisors (associate of Oppenheimer & Co), Indosuez W. I. Carr Securities, Motilal Oswal Securities, Sunidhi Consultancy and Capital Market Publishers.

Presently, Mr Srinivasan is the Fund Manager for SBI Equity Hybrid Fund (equity portion), SBI Focused Equity Fund, SBI Small Cap Fund, SBI Long Term Advantage Fund - Series II, SBI Long Term Advantage Fund - Series III, SBI Long Term Advantage Fund - Series IV & SBI Long Term Advantage Fund - Series V.

Mr Dinesh Ahuja has completed his BCom and has done his Master of Management Studies - Finance from University of Mumbai and has over 22 years of experience in Indian financial services and capital markets in various capacities.

He has a rich experience in managing debt schemes. Before joining SBIFMPL, Mr. Ahuja was working as Fund Manager with L&T Investment Management Ltd. He has also been associated with Reliance Asset Management Ltd. and Reliance General Insurance Co. Ltd.

Currently he is the fund manager of SBI Magnum Income Fund, SBI Magnum Gilt Fund, SBI Dynamic Bond Fund, SBI Magnum Medium Duration Fund, SBI Magnum Constant Maturity Fund, SBI Debt Hybrid Fund (debt portion), SBI Equity Hybrid Fund (debt portion), and SBI-ETF 10 Year Gilt Fund.

Mr Mohit Jain has done his Electrical Engineering and is a CFA. Mr Mohit Jain joined SBI Funds Management Private Limited (SBIFMPL) in May 2015 as Credit Analyst and has over 8 years of experience in the area of financial services. Prior to joining SBIFMPL, Mr. Jain was working with Crisil Limited as Research Analyst (Jan 2012-Apr 2015). He is the dedicated Fund Manager for managing overseas investments of the Schemes of SBI Mutual Fund which have a mandate to invest in overseas securities.

The outlook for SBI Magnum Children's Benefit Fund - Investment Plan:

To achieve the objective of the scheme, i.e. to generate long term capital appreciation the fund managers will actively manage the scheme and will keep a multi-cap approach. They will select stocks for investment from across all market cap and sectors as well.

The Economic Times reported, the basic intent of launching this fund was explained by Vinay Tonse, MD & CEO, SBI Mutual Fund. "Funding education of their children is the top priority for any parent. Given the dual challenges of rising cost of education and interest rates coming down significantly, there is a need to look beyond traditional investment options. SBI Magnum Children's Benefit Fund - Investment Plan is an ideal fit given its construct of being well-diversified across asset-classes, be it equity, debt or gold.

Equity asset class as a long-term wealth-creator will help parents in having the right financial support to take care of their child's future and the sooner they start the better it is,"

While the fund managers mentioned their investment approach to money control, R Srinivasan, head-equity, SBI MF, says that the equity portion of the fund will be run like a multi-cap scheme.

Since the scheme's debt component would be restricted to just 35 % it would be managed conservatively, says Dinesh Ahuja, debt fund manager for the fund. "We will stick to high-quality AAA-rated names, and if there is a potential to generate alpha in AA or AA-plus rated corporate bonds, we would consider high-quality names in that segment," he added

Although the scheme has the advantage of capturing opportunities by investing in different asset classes to generate returns because the assets are non-correlated with each other within the portfolio, the fund will mitigate the risk of loss due to any single asset class.

However, the fund has a higher exposure to equities which makes generating returns in the current environment even more challenging. The novel coronavirus has muted corporates' earnings and shows drop-in consumption preferences coupled with the continued slowdown in India's economy. Besides, due to the strain of Indo-China relations, dealing with Chinese goods and services will weigh heavily on the markets and consumer consumption.

[Read: Can India Afford To Completely Decouple From China?]

So, the construction of the portfolio would be a challenge for the fund managers because it is difficult to spot opportunities in the current environment along with the risk management measures they adopt. Therefore, although there may be good opportunities in the long run, the risk could be very high as well.

Editor's note: The last few years have not been among the best for equity mutual funds. While most funds have underperformed or are struggling to match the returns of the benchmark, there are few funds that have the potential to constantly generate alpha for its investors. And we have identified five such high alpha generating funds, in our latest report 'The Alpha Funds Report 2020'. Do not miss our latest research finding. Get your access to this exclusive report, right here!

Author: Aditi Murkute

This article first appeared on PersonalFN here.

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PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.

Disclaimer:

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