NFO Review

NFO review: SBI Automotive Opportunities Fund

It will be the first active fund to invest in the automotive sector. Here's all you need to know about it.

SBI Automotive Opportunities Fund NFO: All you need to knowAI-generated image

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The Indian automobile sector has got its wheels rolling. Their stocks, too, are in the fourth gear, thanks to the recovery in chip shortages and consumer sentiment from pandemic lows. The gains have grabbed India's largest mutual fund's attention as well. SBI Mutual Fund has launched its newest fund offering, the SBI Automotive Opportunities Fund, which opened for subscription on May 17, 2024, and will close on May 31, 2024.

While there are currently four passive schemes replicating the Nifty Auto Index (two ETFs and two index funds), SBI Mutual Fund's new offer marks the entry of the first active fund to invest in the auto industry and its allied sectors.

Below are some key details of the NFO (new fund offer).

NFO snapshot

Fund name SBI Automotive Opportunities Fund
SEBI category Sectoral/thematic
NFO period May 17 to May 31, 2024
Investment objective To benefit from the growth in the automotive sector and its allied business activities.
Benchmark Nifty Auto TRI
Fund manager(s) Tanmaya Desai and Pradeep Kesavan 
Exit load 1 per cent (of applicable NAV) if units are redeemed within one year from the date of allotment. Nil thereafter.
Tax treatment Same as any other equity fund. Gains above Rs 1 lakh are taxed at 10 per cent if units are sold after one year. These gains are taxed at 15 per cent if the units are sold within one year. 

About SBI Automotive Opportunities Fund

  • The fund will be benchmarked against the Nifty Auto Total Return Index (TRI), which gunned out an impressive 71.7 per cent return in the last year compared to Nifty 50 TRI's 26.5 per cent return in the same period.
  • The fund will likely have a concentrated portfolio of around 25-30 stocks. The investment universe is spread across auto components and equipment makers, passenger cars and utility vehicles, two- and three-wheelers and commercial vehicle players.
  • The pool also includes auto ancillaries such as abrasives and bearings, construction vehicles, tyres and rubber companies etc.
  • The fund can also invest up to 35 per cent of its net assets in overseas companies. However, this will only be possible after the RBI-imposed restrictions on overseas investments are relaxed.

About the fund managers

Tanmaya Desai will be in charge of managing the fund's domestic allocation, and Pradeep Kesavan will handle the fund's overseas securities.

Desai has nearly 19 years of experience, including 16 years in the capital markets. He currently manages the SBI Healthcare Opportunities Fund. Kesavan, with over 18 years of experience in the financial services sector, joined the fund house in July 2021. He is the dedicated fund manager for SBI Mutual Fund schemes' overseas investments.

So, should you invest in the fund?

Thematic or sectoral funds are synonymous with high volatility and long periods of consolidation. At Value Research, we have long believed that diversified equity funds like flexi-cap funds are better suited for investors. These funds invest in companies across multiple sectors including the auto segment. This automatically provides investors with exposure to the auto industry.

However, if you are keen on investing in this specific theme, we suggest allocating only 5-10 per cent of your investment portfolio to this fund.

Also read: Ask these 3 questions before investing in an NFO

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