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Product Labeling This product is suitable for investors Riskometer who are seeking*: Regular income and capital appreciation. To generate income by investing in arbitrage opportunities in the cash and derivatives segment of the equity market, and capital appreciation through a moderate exposure in equity. *Investors should consult their financial advisers if in doubt about whether the product is suitable for them.
Index Predicament of low risk hybrid strategies • SBI Equity Savings Fund • The Arbitrage Component • Tax Efficiency • Key Features • Portfolio Holdings • Why Invest? • Performance • About SBI Funds Management Pvt Ltd • Investment Team •
Predicament of Low Risk Hybrid Strategies
Difficulty of Low Risk Hybrid Strategies Low risk Hybrid Strategies - Two for One Benefits Equity Fixed Income (Less than 35%) (More than 65%) Regular Income Capital Appreciation Low Risk High Risk Taxation: Non Equity Scheme Problem: Tax Inefficiency
SBI Equity Savings Fund
Connecting the Strategies Bringing Tax Efficiency Net Long Equity Exposure 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% SBI Equity Savings Fund Cash- future arbitrage 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Debt & Money Market 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
A 3 Pronged Strategy - Generates capital appreciation by taking limited equity exposure - Stock selection is focused on 3 factors Equity 1. Growth potential relative to peers 2. Valuations 3. Value add i.e., excess RoCE > WaCC - Generates income by exploiting the arbitrage opportunities in the market Arbitrage - Invests into equity stocks in the cash market & takes an equivalent short position in futures market - Captures spread between spot & futures market - Generates regular income by investing in debt & money market instruments - Provides liquidity to the fund & also margin for Debt derivatives - Maturity profile of debt instruments is based on interest rate outlook & current market conditions RoCE = Return on Capital Employed; WaCC = Weighted Average Cost of Capital
SBI Equity Savings Fund: Positioning Mid Cap Equity Funds Multi Cap Equity Funds Balanced Funds SBI Equity Savings Returns Fund Hybrid Debt Funds Debt Funds Arbitrage Funds Liquid Funds Risk
How does the Arbitrage Strategy work? Working of a Cash Future Arbitrage Strategy Price of Company A in Cash Market - Rs .200.30 Start Date Price of Company A in Futures Market - Rs. 203.35 Profit in Cash Market: Price in Cash & 1 Rs.9.70 Futures Market Loss in Future Market: Rs. 210 Rs.6.65 Profit /Loss in Cash Price in Cash & Net Gain 2 Market: Rs.0 Futures Market On Expiry Profit in Future Market: Rs. 200.30 Rs. 3.05 Rs.3.05 Loss in Cash Market: Price in Cash & 3 Rs.10.30 Futures Market Profit in Future Market: Rs. 190 Rs.13.35 The above is only to explain the concept of cash future arbitrage and should not be construed as any indication of future returns. The above illustration does not take costs into consideration.
How different is this fund from other strategies? Debt Equity Balanced Arbitrage Hybrid Savings Funds Funds Funds Funds Type of Scheme Debt Balanced Equity Equity Typical Equity Allocation Range <=35% >=50% >=65% >=65% (including equity derivatives) Cash – Future Arbitrage X X Strategies followed Volatility Medium High Low Medium Equity Taxation* No May have Yes Yes *Please consult your tax advisor for details
Tax Efficiency Illustration Non-Equity Equity Gain required in non- Taxation Taxation equity tax product Amount of Investment 1,00,000 1,00,000 1,00,000 Assumed Pre-tax 9% 9% 14% annualized return Gains/Interest Earned 13,763 9,000 9,000 after 1 year Amount at the end of 1 1,13,763 1,09,000 1,09,000 To year reproduce similar 13,763 Taxable Gains/ Income 9,000 9,000 gains 35% Applicable Tax Rate 34.61% 0% 4,763 Tax Liability 3,115 0 9,000 Post Tax Gains/ Income 5,885 9,000 9.00% Post Tax Annualised Yield 5.89% 9.00% *Assuming highest tax bracket. The above table is only to illustrate the tax treatment of different types of funds and in no way should be construed as any indication of returns. Past performance may or may not be sustained in future. This calculation is based on prevailing tax laws and is applicable only in case of resident investors. Please consult your tax advisor for details
Fund Philosophy & Asset Allocation Investment objective is to generate income by investing in arbitrage opportunities in the • cash and derivatives segment of the equity market, and capital appreciation through a moderate exposure in equity. Invests across equity, debt & equity derivatives • Suitable for conservative investors looking for superior risk adjusted returns over the • medium term Indicative Asset Allocation under normal circumstances: • Indicative allocations Instruments (% of total assets) Risk Profile Minimum Maximum Equity and Equity related Instruments including derivatives 65% 90% Out of which: Medium to High - Cash-future arbitrage: 15% 70% - Net long equity exposure: 20% 50% Debt* and Money Market Instruments 10% 35% Low to Medium (including margin for derivatives) The cumulative gross exposure through Equity and Equity related Instruments including derivatives position, debt, Money Market Instruments /Units of debt & liquid mutual funds will not exceed 100% of the net assets of the scheme. *Exposure to domestic securitized debt may be to the extent of 20% of the net assets. The Scheme shall not invest in ADR/ GDR/ Foreign Securities / foreign securitized debt. The Scheme shall invest in repo in corporate debt. The Scheme shall not engage in Stock lending. The Scheme shall not engage in short selling. The scheme shall follow an alternate asset allocation on defensive considerations when there are not adequate arbitrage opportunities available in the Derivative and Equity markets. Investors are advised to refer to the Scheme Information Document or Key Information Memorandum for more details.
Key Features The Scheme has two plans viz. Regular plan & Direct plan. Plans/ Options Both plans would offer Growth & Dividend options. Dividend option has the facility of Reinvestment, Payout & Transfer Benchmark 30% Nifty 50 + 70% Crisil Liquid Fund Index Mr. Neeraj Kumar (Arbitrage portion) & Mr. Ruchit Mehta Fund Manager (Equity & Debt) Entry Load: Not Applicable Exit Load: For exit within 1 year from the date of allotment: For 9% of the investments – Nil For remaining investments -1% Load Structure Switches made to all open ended equity schemes of SBI Mutual Fund and SBI Magnum Balanced Fund within 1 year from the date of allotment – Nil For exit after 1 year from the date of allotment - Nil Minimum Application Rs. 1,000/- and in multiples of Re. 1 thereafter Amount Additional Purchase Rs. 1,000/- and in multiples of Re. 1 thereafter Amount
SBI Equity Savings Fund: Portfolio Holdings Portfolio classification by Asset Type Top 10 Holdings Stock Name % of Total AUM Stock Name % of Total AUM HOUSING DEVELOPMENT FINANCE FINANCIAL SERVICES 31.22 7.44 CORPORATION LTD. CONSUMER GOODS 8.97 AU SMALL FINANCE BANK LTD. 3.80 AUTOMOBILE 8.93 ITC LTD. 3.70 ENERGY 8.03 TATA MOTORS LTD. 3.26 IT 5.31 HDFC BANK LTD. 3.09 CONSTRUCTION 4.94 JET AIRWAYS (INDIA) LTD. 3.00 RELIANCE INDUSTRIES LTD. 2.89 SERVICES 4.81 METALS 3.79 GOVERNMENT OF HARYANA 2.84 PHARMA 3.12 FLOREAT INVESTMENT LTD. 2.83 SOVEREIGN 2.84 YES BANK LTD. 2.48 Data as on 31.05.2017
SBI Equity Savings Fund: Asset Allocation Pattern Month-end asset allocation 100% 10% 20% 30% 40% 50% 60% 70% 80% 90% 0% Jun-16 29.28% 35.92% 34.80% Jul-16 25.48% 35.69% 38.83% Aug-16 29.31% 33.47% 37.21% Sep-16 30.25% 33.95% 35.81% Debt & MM Oct-16 31.15% 48.11% 20.74% MF UNITS Nov-16 31.17% 48.28% 20.55% Net Long Equity Dec-16 31.18% 49.03% 19.79% Jan-17 31.66% 33.83% 34.52% Arbitrage Feb-17 31.39% 33.84% 34.77% Mar-17 32.16% 33.55% 34.30% Apr-17 33.57% 34.28% 32.15% May-17 32.28% 49.04% 18.68%
Why Invest? Lower Volatility 1 Net long equity exposure in the range of 20 – 50%; Limited directional equity exposure reduces the volatility compared to equity funds Potential for capital appreciation 2 Moderate exposure to equity allows the fund to participate in the long term growth of equity markets Regular Rebalancing 3 Directional equity exposure in the range of 20%- 50% ensures disciplined rebalancing; fund manager buys at market lows & sells at market peaks Tax Efficiency 4 Fund is an equity fund for tax purposes; endeavours to generate superior risk- adjusted returns compared to hybrid funds* *Investors are advised to consult their Tax/ Financial Advisor before taking decision of Investment.
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