SBI Focused Equity Fund: Outstanding Track Record of Wealth Creation
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SBI Focused Equity Fund: Outstanding track record of wealth creation
For this article, we looked at the best performing focused equity funds category in terms of
long term SIP returns. For our analysis we looked at monthly SIP performance of different
focused equity funds over long investment periods 5 years, 7 years, 10 years etc. For investing
through SIPs, you should always have long investment tenures so that you can benefit from
power of compounding over long tenures.
SBI Focused Equity Fund clearly stood out as an outstanding performer among its peers. The
table below shows the returns of Rs 5,000 monthly SIP in SBI Focused Equity Fund over different
tenures and its rank in the category. Clearly, over long investment tenures SBI Focused Equity
Fund is one of the best SIP performers in its category.
Source: Advisorkhoj Top Performing SIP
The chart below shows the annualized SIP returns (XIRR) of the SBI Focused Equity Fund
compared to different asset classes over different tenures (periods ending 13th January 2020).
You can see that the scheme outperformed other asset classes.
Source: Advisorkhoj Benchmark Returns
We can draw several interesting and important conclusions from the chart above:-
1. Over a long period of time, interest rates are on a secular decline in India. This will continue in
the long term and investors have to be prepared for it.
2. Gold, a favoured asset class in many Indian families, has performed well in the near to medium
term but has failed to outperform equity in the long term.
3. Equity is the best asset class in the long term, particularly if you are investing from your
regular savings, systematically or otherwise, as most Indian households do.
4. SBI Focused Equity Fund has generated considerable amount of alpha for SIP investors
over different long term investment tenures.
Performance Consistency
In our view performance consistency is an important attribute for good long term SIP returns
because SIP investments over long periods of time are made at a different price points and market
conditions. We have discussed a number of times in our blog that rolling returns is one of the
best measures of performance consistency over long investment tenures. The chart below shows
the 3 year rolling returns of SBI Focused Equity Fund over the last 5 years(ending 13th
January 2020) versus its benchmark index S&P BSE 500 TRI. You can see that the scheme
outperformed the benchmark most of the times over 3 year investment tenures in the last 5 years.
Source: Advisorkhoj Rolling Returns
The average of the annualized 3 year rolling returns of SBI Focused Equity Fund since its
inception (till 13th January 2020) was around 16.0%. Please note that SBI Focused Equity Fund
was launched 15 years back and therefore, when we are calculating average 3 year rolling returns
we have quite a large sample of rolling returns across different market conditions. Statistically
speaking, averages from a large time series sample provides greater confidence of getting similar
results in the future over long investment horizons. However, investors should note that as the
Indian equity market matures and becomes more efficient, scope of high alpha generation will
gradually get more limited in the future and should form expectations accordingly.
Investors should not take historical returns as indicators of future returns. It should rather be taken
in the context of relative performance versus other asset classes so that you can make informed
investment decisions. SBI Focused Equity Fund gave more than 8% CAGR returns nearly 76% of
the times in the last 15 years. The long term historical average 10 year Government bond yield
was in the range of 7 - 8% - this was the typical investor expectation for fixed income assets,
though the expectation should now be revised downwards as long term interest rates in our
economy is on a lower trajectory.
SBI Focused Equity Fund gave more than 12% returns over 3 year investment tenures, nearly
68% of the times since its inception. We think that 11 - 12% returns should be expectations from
equity as an asset class in India, factoring in long term secular GDP growth potential and inflation
expectations. Though alphas may contract in the future, the long term rolling returns performance
across different market conditions of SBI Focused Equity Fund shows considerable wealth
creation potential for investors in the future.
Wealth creation by SBI Focused Equity Fund
The chart below shows the wealth accumulated through Rs 5,000 monthly SIP in Focused Equity
Fund, Growth Option over the last 5 years (period ending 13th January 2020). You can see that
with a cumulative investment of Rs 3 lakhs you could have accumulated wealth of more than
Rs 4.25 lakhs over the last 5 years through monthly SIP. The annualized SIP returns (XIRR)
over the last 15 years was 14.4%.
Source: Advisorkhoj Research
About SBI Focused Equity Fund
The scheme (formerly known as SBI Emerging Businesses Fund) was launched in October
2004 and has Rs 6,924 Crores of assets under management (AUM). The scheme’s AUM has
nearly doubled in the last 9 – 10 months showing investor confidence and strong performance.
The expense ratio of the scheme is 1.92%. Industry veteran R. Srinivasan is the fund manager of
this scheme. Srinivasan has 26 years of experience and has been the managing the scheme for
nearly 10 years. The long continuity of the fund manager of this scheme, in our view, has enabled
the scheme to deliver strong performance.
Portfolio Construction
Focused funds are equity mutual fund schemes, which invest in a concentrated portfolio of stocks.
As per SEBI’s mandate, focused funds can invest in maximum 30 funds. You should
understand that, even though focused funds invest in a limited number of stocks (less than 30),
they invest across multiple industry sectors and segments, thus diversifying sector risks. However,
the company concentration risk is slightly higher in focused funds compared to more diversified
equity funds. The chart below shows the top stocks and sectors of SBI Focused Equity Fund.
Source: Advisorkhoj Research
Summary
SBI Focused Equity Fund is suitable for long term financial goals. We think that investors should
have a minimum investment horizon of 5 years for this scheme. The risk profile of this scheme is
moderately high; the scheme is suitable for investors with moderately high to high risk appetites.
Investors should consult with their financial advisors if focused funds and particularly, SBI Focused
Equity Fund is suitable for their investment needs.
Mutual Fund Investments are subject to market risk, read all scheme related documents
carefully
Author Details
Advisorkhoj Research Team
Our research team has a combined experience of nearly 40 years in the financial services
management and distribution, across the entire spectrum of product classes including mutual
funds, insurance, equity broking and loan products. To contact our research leads, please
see their contact information below.