INVESTMENT - FOR STARTERS-1

We have decided to begin a series in which we would take the investors or I'd say prospective investors through a 4-day tour which will NOT ONLY GIVE A REASON TO INVEST, BUT A RIGHT DIRECTION FOR SUCH INVESTMENTS.

  

We all have doubts when it comes to invest your money. Frequent questions like - why should i invest in Fixed deposits or investing in Stocks is too risky ?

Well, I can answer all those questions...........................MUTUAL FUNDS 

BUT WHY ??????????????????????????

1) Beating inflation

Compared to the 4% which is banks provide in your saving account, they don't consider that inflation may be nibbling away its value.

Mutual funds provide an ideal investment option to place your savings for a long term inflation adjusted growth, so that the purchasing power of your hard earned money does not get plummet over the years.

2) Expert Fund Managers

Every fund has a Fund manager who decides the financial decisions based on the performance and prospects available in the market to achieve the objectives of the mutual fund scheme.

3)Low Cost

The biggest advantage for any investor is the low cost of investment that mutual funds offer, as compared to investing directly in capital markets. Most stock options require significant capital, which is not possible for young investors who are starting out.

4) Diversification

Mutual funds help mitigate risks to a large extent by distributing your investments across diverse range of assets. Mutual funds offer a great investment opportunity to investors who have a limited investment capital.

5) High return potential

Mutual funds have the potential to generate a higher returns as you can invest in diverse range of sectors.

YOU WANT TO PLAY SAFE !!!!!!!!!

THEN READ ON  

SBI Magnum Monthly Income Plan: A good hybrid mutual fund scheme for conservative investors

Picture courtesy - PIXABAY

> SBI Magnum Monthly Income Plan balances the need for capital safety with inflation beating returns. 

>The fund achieves the balance by investing around 85% of its portfolio corpus in debt and money market, and around 15% in equity market. 

>The fund has given 12 – 14% returns to investors over the last 1 to 3 years. These are excellent returns for a conservative monthly income plan (aggressive monthly income plans invest 25 to 30% in equities). 

In 2008 stock market crashed by more than 50%; gold fell around 25%. The 1 year rolling returns chart of SBI Magnum Monthly Income Plan shows that, fund value fell by less than 10% in 2008.

The rolling returns chart of SBI Magnum Monthly Income Plan shows how quickly the fund recovered all its losses.

 After 2008, we again had stress in capital markets several times, in 2011, 2013 and 2015 / early 2016. You can see that, even in those stressful times, as mentioned earlier, the fund was able to show resilience and preserved the investor’s capital. 

Now focus your attention on the peak rolling returns. You can see that the peak rolling returns were all in double digits; in fact the maximum 1 year rolling returns (circled red) of the fund was more than 20%.

Fund Overview

SBI Magnum Monthly Income Plan was launched in 2001 and has around र 525 crores of assets under management (AUM). The expense ratio of the fund is 2.2%. Dinesh Ahuja and Ruchit Mehta are fund managers of this scheme. The chart below shows the annual returns of the fund over the last 5 years.

You can see that, the fund was able to beat the benchmark and its peers in most years. We had seen in the 1 year rolling returns chart of SBI Magnum Monthly Income Plan, that the volatility was much lower than equity investment.

Risk Factors

There are three risk factors in SBI Magnum Monthly Income Plan:-

Interest Rate Risk:

SBI Magnum Monthly Income Plan is a debt oriented hybrid fund (83% portfolio corpus is invested in debt securities). The average maturity of the debt portion is 7.5 years. 

With debt portfolio’s average maturity of 7.5 years, SBI Magnum Monthly Income Plan is sensitive to interest rate risk.

Credit Risk:

The credit quality of the portfolio is high. 97% of the debt portfolio is rated AA and above. 83% of the debt portfolio is AAA rated. 50% of the debt portfolio corpus (45% of the total portfolio corpus) is invested in Government of India bonds.

Equity market risk:

14% of the portfolio corpus is invested in stocks which are naturally exposed to equity market risk. But since, the overall portfolio allocation to stocks is limited only to 14% the equity risk is quite limited in the context of the overall portfolio risk. Within the equity portion more than 60% is invested in large cap stocks.

The volatility of SBI Magnum Monthly Income Plan, measured in terms of annualized standard deviation of monthly returns, is only 3.5%. To volatility of SBI Magnum Monthly Income Plan in context, the average volatilities of diversified equity funds are more than 17%.

Growth of र 1 lac investment over the last 5 years

The chart below shows the returns of र 1 lac lump sum investment in SBI Magnum Monthly Income Plan (Growth Option) over the last 5 years. Annualized return was 11.4%

Conclusion

We had discussed in this post that, SBI Magnum Monthly Income Plan has a strong track record of performance. This fund can suitable for investors looking for regular income as well capital appreciation, on the bedrock of high degree of safety and liquidity. Investors should consult their financial advisors if SBI Magnum Monthly Income Plan is suitable for their investment needs.

THANK YOU 

KEEP READING, KEEP LEARNING, KEEP MOTIVATING.

JEKIN SAVLA / JOSHUA D'MELLO 

DISCLAIMER :- BOTH THE AUTHORS ARE IN NO WAY ASSOCIATED TO THE COMPANIES/FUNDS MENTIONED ABOVE. THE ABOVE INFORMATION IS PURELY BASED ON THE RESEARCH AND DATA AVAILABLE IN PUBLIC DOMAIN.