Things seem to be changing at SBI Mutual Fund (SBIMF), one of India's oldest fund companies. The assets under management are on the rise. A sophisticated joint venture partner has been roped in. And some of the funds are performing better.
Asset Growth
The assets of SBIMF have more than tripled in the last four years. An on February 28, 2005, it managed Rs 6116.37 crore. In the year ended February 28, 2005, SBIMF assets went up by 12.95 per cent. The market share too increased from 3.74 per cent in February 2004 to 4.01 per cent in February this year. The institutional plan of its cash fund alone accounts for nearly 30 per cent of the total assets. The fund house launched hybrid asset allocation and floating rate funds last year-together, the three funds in the two categories manage around Rs 407 crore. Its equity assets are also getting larger. As of February 28, 2005, equity funds contributed nearly 21.48 per cent of the assets under management. Magnum Pharma has become very popular-the fund now manages Rs 177 crore as compared to a meagre Rs 24 crore in January last year. But in the hierarchies of fund companies, SBIMF has not been able to grow as rapidly as some of its peers. In January 2003, it was the sixth largest player, but it has been pushed to the 10th position now.
Image Makeover
Launched way back in June 1987, the AMC was initially known for its closed-end schemes. It would launch tax-planning and monthly income plans virtually every season. The fund house introduced its first closed-end equity fund Magnum Multiplier Plus (now Magnum Equity) in November 1990. In 1993, the fund house had yet another landmark success-its Magnum Multiplier Plus '93 managed to mop up a whopping Rs 1,000 crore during its IPO. In 1994, SBIMF came up with its first open-end scheme, Magnum Global. Since then, it has expanded its product basket to cover all sorts of funds.
Today, its offering is quite well-spread-a mid-cap fund is the latest offering from the fund house. Magnum Mid-cap is open for initial subscription between February 21 and March 17, 2005.
Performance
The AMC has a great run with its equity funds in 2004. Two of its funds were in the first and the second place among all equity funds. Magnum Global gained 68.35 per cent and Magnum Contra was up 64.26 per cent. Overall, the fund house has six diversified equity funds, three tax-planning (two close-end), three sector and one index funds. Of all the equity funds, Magnum Contra is a classic offering. In fact it's one of the few funds in the SBIMF arsenal that has a solid performance record.
Historically, SBIMF's equity funds have seen more downs than ups. They have performed, but in patches. Some years they would put up a grand show. But returns close to the category or way under it in most years have tarnished their images. Take for example Magnum Equity and Magnum Multiplier Plus. Both had a superlative start in 1990 and 1994, respectively, as their launch preceded the bull run in stock markets. A chequered performance followed. While Magnum Multiplier Plus did show some signs of recovery in 2003 and 2004, Magnum Equity continues to disappoint. However, things may change with Magnum Global and Magnum Contra doing well. Launched in September last year, Magnum Emerging Businesses too is doing well.
The AMC's sectoral offerings have had a mixed record. Magnum Pharma has put up a good show and has performed in line with the category average. It was the best performing fund in 2003 and 2004. Magnum FMCG was a poor performer in both 2000 and 2001, but has turned around after 2002. Magnum IT, on the other hand, after a solid start, has slowed down in subsequent years.
SBIMF offers an enormous array of debt funds. From the fixed income bouquet, Magnum Income (a medium-term income fund with aggressive interest rate risk management), has disappointed in recent times. Its medium and long-term gilt fund (growth options)-which is among the largest in the category-too is slipping down. Magnum MIP too has put up a poor show in 2004.
Recent Developments
SBIMF was also in the news in December when Societe Generale Asset Management came in as a joint venture partner. The sponsor, SBI, sold 37 per cent of equity in the AMC. The global expertise of Societe Generale in the areas of risk management, research and product development, will add to SBIMF's reach and presence, and the AMC can expect to climb back on the rankings.
The Road Ahead
This public sector bank house has all the ammunition to emerge as one of the major players in the Indian mutual fund industry. Funds like Magnum Contra, Magnum Global and Magnum Emerging Businesses are the future of this veteran fund house. Magnum Mid-cap, whose IPO is currently underway, may add spice to the AMC's bouquet of products. Overall, the fund house has almost a complete product basket, a good asset base and above all a wide reach. With Societe Generale bringing in global skills, a few good performances will change the way most investors think of SBI Mutual Fund.
Strategy Note
P.G.R. Prasad
MD, SBIMF
Investment Strategy
In equity, we follow a top-down approach in identifying the preferred sectors and then follow a bottom-up approach for the selection of individual scrips. In respect of debt funds, the investment strategy is based on the view on the interest rates for various types of securities and for various maturities taken by the debt investment team. The market view is taken for the short, medium and the long term.
Future Plans
SBIMF will be looking at new product launches periodically. We will also benefit from the wide range of products available with our joint venture partner Societe Generale Asset Management, which can be suitably redesigned and offered taking into account Indian investor preferences.
On SocGen JV
The primary benefit from the JV will be the access that SBIMF will have to their international expertise in the area of risk control, research and product development. SGAM is one of the major asset management companies having operations in all parts of the world and managing assets of over $330 billion. We have been already interacting with them actively for the past six months. A senior functionary from SGAM is already working with us in the capacity of deputy CEO. The impact of these changes will be visible over the next few months.
Comments on the Union Budget
It's a growth-oriented Budget, which augurs well for the equity markets. We expect continued investor interest in the equity markets and in equity mutual fund schemes.
This article was originally published on April 15, 2005.
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