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Taking Risks for Returns

SBI Magnum Emerging Business has delivered good returns, but it remains a risky bet…

I want to start a monthly SIP of Rs 2,000 in SBI Magnum Emerging Business. The returns on this fund are the best in the category, yet you have rated it as a four-star fund. Should I still invest in this fund?
-Rupesh Agarwal

Here are some details on Magnum Emerging Business
* Category: Equity: Mid & Small Cap
* Rating: 4 star
* Inception: September 2004
* Theme: A focus on emerging business themes, primarily based on the export or outsourcing opportunities and global opportunities of such themes. It will also focus on emerging domestic investment themes.

The fund put up a fabulous performance over the past two years and even its current trailing returns impress. But it is a risky bet. It takes a fair amount of risk to deliver those returns. Invest in this fund only if you are comfortable with the investment risk.

On the fund being rated 4-star; we would like to clarify that the Value Research’s Fund Rating is based on a risk-adjusted performance of a fund relative to its peers. It is for this reason that the fund rating is a good starting point for a fund evaluation. The rating considers equity funds that are at least three years old with a blend of 3- and 5-year performance considered to arrive at a rating. You should not fret over this fund being 4-star or 5-star rated, what you should look at is the fund’s consistency with ratings. Magnum Emerging Business has been a 4-star fund since July 2011. The fund was rated 4-star the first time it was rated in December 2007 and then underperformed for a while.

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