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Friday, December 20, 2013

SBI Magnum Income Fund

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SBI Magnum Income is a long-term income fund. The fund was started way back in November 1998. Currently it has assets under management (AUM) worth Rs. 1,086.68 crore. Crisil Composite Bond Index is the fund's benchmark.

Peer Group. We have considered long-term income funds as the peer set for this fund.

Performance

The fund has outperformed its benchmark as well as category average in the year-to-date (YTD), six-month, one- and three-year periods. It has also done better than its benchmark in terms of returns since inception. It is the best performer in this category in the one-year period and the third best in the three-year period as per our peer set.

YTD

6-Months

1-Year

3-Years

Since Inception

SBI Magnum Income

1.60

6.69

12.16

8.92

7.71

Crisil Composite Bond

1.38

4.92

9.38

7.23

6.31

Category Average

1.06

5.75

10.18

8.00

NA

All figures in % as on January 31, 2013; Returns above one-year in CAGR terms

The fund's calendar year performance was not impressive in 2008 and 2009, the latter seeing a negative return. It outperformed its category average in 2010, 2011 and 2012. It gave returns superior to its benchmark in the last two calendar years.

2008

2009

2010

2011

2012

SBI Magnum Income

7.57

-2.54

4.84

8.59

12.55

Crisil Composite Bond

8.81

3.50

4.88

6.90

9.34

Category Average

16.13

1.55

4.68

7.80

10.43

All figures in %

Interest-Rate Risk. Currently the fund has a modified duration of 85 months (or 7.11 years) which is higher than the category median of 62 months (or 5.13 years). The fund has increased the modified duration over the last twelve months. This implies that the fund is likely to be impacted more by interest-rate movements than most of its peers. If RBI cuts rates the fund will benefit more, and if it increases rates it will also lose out more.

Yield to Maturity. The fund has a current yield to maturity (YTM) of 8.31 per cent against the category median of 8.39 per cent. This is the return that the portfolio will yield if held to maturity.

Portfolio Composition. We compared the asset holdings of the fund vis-à-vis the category average in the last one year period. We find that the fund has a lesser allocation than the peer group to cash, certificates of deposit (CDs), Public Sector Units (PSU) and Public Financial Institution (PFI) Bonds and Treasury Bills. The fund has refrained from investing in commercial paper (CPs), deposits, domestic mutual funds, floating rate instruments and pass through certificates (PTCs) and securitised debt.

Over the last 12 months the fund has reduced its exposure to corporate debt by half –from 37 per cent to 18 per cent. It increased the holding of government securities from 40 per cent in February 2012 to almost 80 per cent in January 2013. This was done probably to take advantage of the expected rate cuts by RBI. The fund has also lowered its cash holding from 6 per cent to the current level of 2 per cent.

SBI Magnum Income (%)

Category Average (%)

Cash & Cash Equivalents

11.19

11.47

Certificate of Deposit

8.00

16.62

Commercial Paper

0.00

6.65

Corporate Debt

33.40

47.16

Deposits

0.00

2.10

Domestic Mutual Funds Units

0.53

Floating Rate Instruments

1.73

Government Securities

44.13

34.84

Mibor Linked Instruments

0.00

0.00

PSU & PFI Bonds

2.65

4.26

PTC & Securitized Debt

0.00

1.74

Treasury Bills

0.63

1.94

Top Holdings. The following 11 debt instruments form more than 85 per cent of the portfolio of the fund. One-fourth of its assets is invested in the 8.33 per cent Government of India (GOI) bond maturing in July 2026.

Instrument

Jan-2013 (%)

08.33% GOI - 09-Jul-2026

25.80

08.97% GOI - 05-Dec-2030

22.15

08.15% GOI - 11-Jun-2022

10.92

08.20% GOI - 24-Sep-2025

7.71

08.83% GOI - 12-Dec-2041

6.24

CBLO

3.57

Hindalco Industries Ltd. 9.6% (2-Aug-22)

3.12

Axis Bank Ltd. (31-Dec-22)

2.70

08.59% Andhra Pradesh SDL 2023

1.84

08.84% Gujarat SDL - 17-Oct-2022

1.81

Credit Rating. The fund holds a portfolio which is overweight the category average only on sovereign-grade papers. The fund has never had deposits in its portfolio in the last five year period that we studied. Also the fund has maintained a very high credit quality except in December 2008 when it held some unrated papers.

Rating

SBI Magnum Income (%)

Category Average (%)

SOV

79.57

53.13

AAA

5.45

20.68

AAA(IND)

0.92

AAA(SO)

0.44

1.16

AA+

8.27

9.29

BWR AA+(SO)

2.30

AA+(SO)

5.16

AA

4.31

4.82

BWR AA

1.27

AA(SO)

2.94

AA-

10.55

A+

2.34

BWR A+(SO)

4.21

A1+

10.60

A1+(SO)

4.36

A

7.84

A(SO)

2.98

Deposits

8.35

Cash & Equivalent

1.96

10.94

SO: Long-Term Structured Finance instruments; BWR: Brickwork Ratings

Expense Ratio. The fund's expense ratio is 1.67 per cent which is lower than the category median of 1.72 per cent. A lower expense ratio is a positive.

Exit Load. The fund's exit load is 1 per cent on or before one year and zero thereafter. While the lock-in period maybe higher than some of its peers, it reflects the fund manager's view that the investor should invest for a minimum period of a year.

Fund Manager. Dinesh Ahuja has managed this fund since January 2011. He also manages SBI Dynamic Bond and SBI Magnum Gilt – Short Term Plan and Long Term Plan, all of which have a good performance in their respective categories. This fund has done really well after he took charge.

Conclusion

The fund is heavy on government securities and high-rated instruments, which leads to lower credit risk. However, its high modified duration makes it susceptible to interest-rate risk.

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