SBI Focused Equity Fund comes from stable of SBI Mutual Fund. Let’s review SBI Focused Equity Fund today to find if its worth to invest in this fund. Previously this was known as SBI Emerging Businesses Fund. Some of the questions that I will try to answer are :
What is the category of SBI Focused Equity Fund ?
How is portfolio of SBI Focused Equity Fund?
How is performance of SBI Focused Equity Fund?
What does risk stats tell about SBI Focused Equity Fund?
Who is fund manager for SBI Focused Equity Fund?
What is USP of SBI Focused Equity Fund?
What is Tax Treatment of SBI Focused Equity Fund?
Are there better funds than SBI Focused Equity Fund? And finally
What is my opinion about SBI Focused Equity Fund?
So let us get started.
Disclaimer & Disclosure
Before you read the article – a disclaimer. Please note I am not advising you on any financial decision on SBI Focused Equity Fund. Please treat article as my personal view only. Also note currently I am NOT invested in SBI Focused Equity Fund. With that, let us get started with review.
What is Category of SBI Focused Equity Fund
As per SEBI guidelines, every fund falls in a category. This helps investor understand basic characteristics of that fund. It also helps compare one fund with others in same category. You can see all the categories of mutual funds here. SBI Focused Equity Fund falls under category called Focused Fund.What is Focused Fund Category
SEBI definition is as follows. An open ended equity scheme investing in maximum 30 stocks (mention where the scheme intends to focus, viz., multi cap, large cap, mid cap, small cap).
So what does it really means to us. This fund will be investing in limited number of stocks. Rather than investing small percentage of money in large number of stocks, this will invest large amount in small number of stocks. This is high reward and high risk approach also commonly called as focused approach.
In general suitable for aggressive investors who want to take additional risk in exchange for better returns. Let us now look at where fund invests its money or it’s portfolio.
Portfolio of SBI Focused Equity Fund
This fund has a concentrated but diversified portfolio. What I mean is stocks are less (around 25) but market cap wise it has diversified distribution compared to say Axis Focused 25 Fund in same category. Overall I feel this is a good multi cap fund in Focused category. It is showing mix of growth and Value investment style.And why do I feel like this?
Let us look at the Portfolio in detail now as ultimately that is what will decide risks and returns. Portfolio does change over time but generally investment style does not change as long as fund manager is same. Let us first start with understanding asset allocation of fund.
See below table to understand asset allocation of SBI Focused Equity Fund. Being an equity fund, most of the money will be invested in Indian stocks. As per scheme information document, minimally 65% will be in Indian Equity. So it has option to put rest 35% in debt and Money market instruments. It can also invest upto 10 % in REIT (Real Estate Investment Trust).
But that will be in rare scenario. Typically, fund would be fully invested in Indian stocks.
|Asset||Typical % allocation|
|Indian Equity||90 to 100 %|
|Debt, Money Market instruments, Cash & Equivalent||0 to 10 %|
Characteristics of Equity Allocation
|Benchmark||S&P BSE 500 TRI|
|Giant companies||49 %|
|Large companies||21 %|
|Mid cap companies||23 %|
|Small companies||7 %|
|Financial sector||34 %|
|Number of Stocks||24|
|Top 10 Stocks||59 % of your money|
|Top 5 Stocks||39 % of your money|
|Top 3 Sectors||55 % of your money|
If you see above table, you will understand the style of investment for this fund. Do not focus too much on specifics like exact percentage or exact sector but try to understand the pattern of investment style. Actual numbers may vary when you are reading the article.
First thing to note is that portfolio is concentrated – number of stocks are limited. This is in line with category objective as maximum allowable limit as per SEBI definition is 30 stocks. Any concentrated fund will perform well when selection of companies works out well but will also take beating if selection goes wrong. This is because stocks are less and so allocated money to each stock is high compared to a fund with say 40 or 50 stocks.
Next important part is its benchmark. It is BSE 500 TRI. That means it has wider or diversified companies to chose from. We see around 70 % allocation in large companies, 23 % in mid cap and 7 % in small cap companies. This is fair distribution from asset allocation perspective but little less on small companies. That could be due to current market situation.
P/B & P/E ratios
With P/E of around 23 and P/B around 2.5, this fund according to me is strong blend of growth and value. It has mix of companies like Avenue Supermarts which seem bit expensive at this stage as well as say BHEL which seem to be at low valuation. So fund is trying to take a balanced approach rather than only growth or value style.
Performance of SBI Focused Equity Fund
For most of investors, this is what matters. So here it is. Fund is a consistent performer in its category. Except may be 2016, it has always beaten the average returns of the category. One unique thing seen in returns is that when market is doing good, it does much better. So in rising market, it is able to make better returns than category. When market is down or moves sideways, its returns come close to category average. So you can use this fund for tactical switch when market is doing well.Want to know more?
No one can predict future performance but past data gives us some indication. So let us see how this fund performed so far. Please note that returns mentioned are as of publishing of this article. For latest returns you can refer Moneycontrol or ValueResearchOnline websites.
Trailing Returns of SBI Focused Equity Fund
Except year 2016, fund has performed better than Category. Also fund did gave negative returns in 2018 but still it dropped lesser than most in category. This is good sign which indicates fund is also handling downside better than few others in category.
|Worst period||Worst Returns (%)||Comments|
|Month||-40.15||Sep – Oct 2008|
|Quarter||-51.76||Sep – Dec 2008|
|Year||-71.47||Dec 2007 – Dec 2008|
Fund would have learned from 2008 experience but I would not read too much into these numbers. Fund was then SBI Emerging Business Fund investing in small caps predominantly. Now its a different asset allocation altogether. In Q1 2020, it dropped around 22 % which is less than BSE 500 drop ( 29 % ) in same period. That is good behavior in bad situation. Let us now move to check risk characteristics.
Overall fund ticks most the the boxes in risk related statistical evaluation. Major factor is Alpha of fund which is significantly higher than category. Note of caution that standard deviation is high so it is a volatile fund. Risk adjusted returns are better than category and I think it deserves a thumbs up for same but it suits only for those who can digest the higher volatility.Comparison of fund risk factors v/s that of category
Standard deviation of fund tells us about how far returns have moved from its mean or average. Basically how volatile returns have been. Less volatile, better it is. This fund has standard deviation of 16 v/s category average of 13.5. So you can say volatility of fund will be higher than other funds in category.
Beta tells us how Fund behaves compared to its Benchmark or Index. Benchmark index is considered to have beta of 1. The closer the value of Beta of fund to 1, more closely fund likely to follow benchmark. Fund has beta of 0.79 which means it is around 79 % co related to its benchmark (BSE 500). Since currently ( in 2020 ), we have more risk of downside, lower beta value is good as fund may fall less than benchmark.
Alpha tells us how actually fund is creating returns over and above its expected beta value. So basically alpha tells us how Fund Manager is doing compared to Index. Higher the alpha, better the returns fund manager able to generate and worth the fee that he or she is charging. Fund has really generated very high alpha. Alpha of 4.53 v/s category average of -1 (negative 1). So this tells us fund manager is really able to take good calls and provide good returns compared to other funds in category.
Sharpe Ratio tells about risk adjusted returns or how much risk we are taking by investing in fund over a guaranteed return product. Fund has sharpe ratio of 0.18 compared to category average of -0.1. Again, fund has better risk adjusted returns compared to the category. This is good sign.
This is another ratio to check risk adjusted returns. Difference to Sharpe ratio is that we use Beta instead of Standard deviation for calculation. Fund has 0.04 value compared to category average of -0.02. Again better risk adjusted returns.
Other things that matter
|Launch date (Age)||Oct 2004 (Original fund)|
|Assets (Rs)||Around 8000 Crore|
- More than 15 years in business so fund has seen various phases of market life cycle. It however was used to be a different fund altogether earlier and was repurposed as Focused Fund much later. But it has done the transition well.
- Good assets under management. This could be partly due to historical assets invested in old fund. Most of retail investors do not redeem when fund changes objective (lack of knowledge, guidance or inertia).
Fund Manager of SBI Focused Equity Fund
R Srinivasan is one of the most experienced fund manager and has helped investors create wealth for investors in recent time. His performance in SBI Small Cap fund has been really good. So overall fund ticks the box to have a very good fund manager for long time.More on fund manager
With total experience 26 years, R Srinivasan is Head of Equity, SBI Mutual Fund. He is one of the top fund managers in India. SBI Small Cap Fund and SBI Focused Equity Fund are managed by him and both the schemes have been consistent out performers in their respective categories. Also he has been with the fund for significant period now. Fund manager is critical part of any mutual fund as calls taken by fund manager decide returns for the investors. Overall he is doing good job.
USP of SBI Focused Equity Fund
USP of fund for me is Fund Manager. With long experience in Indian Mutual Fund industry as well as long tenure with this fund, should benefit the fund well. Other unique thing about the fund is ability to invest across the market cap. So you get Focused approach in a multi cap allocation.more...
For good asset allocation, one should invest in Large, Medium and Small cap companies. Large cap help get stability to portfolio. Mid cap and small cap add that extra returns. So what if you get this in a single fund. Only one fund to monitor and still benefits of diversification. With Focused approach (less stocks), it is little difficult to get good spread across three type of companies. This fund is trying to achieve same. Based on recent track record, it seem to be doing it rather well.
You may also be interested in
As with any other category, there is no dearth of competition here as well. Review of SBI Focused Equity Fund would be incomplete without mention of some of its peers. There are few funds which will give it run for money. Some of the funds that you should check out before investing are
- Axis Focused 25 Fund – You can click to read my review. This is more large cap biased focused fund. So if you want to stay away from small cap and want only small exposure to mid cap, this could be for you.
- Motial Oswal Focused 25 Fund – You can click the link to read review – a very concentrated focused fund.
- Franklin Focused India Equity Fund
- Aditya Birla Sunlife Focused Equity Fund and
Tax Treatment of SBI Focused Equity Fund
SBI Focused Equity Fund is treated as an Equity Fund from tax treatment perspective. So it enjoys current tax benefits.Tax treatment of mutual funds in India
- Tax on Funds coming under Equity Fund category – Long Term capital gain will be taxed at 10% on gains of over Rs 1 lakh in a financial year. If equity investments are sold before a year, the returns are treated as short-term capital gains and taxed at 15 per cent.
- Funds coming under Debt Fund category – Long term capital gains will be taxed 20% with Indexation (if held for more than 3 year) or Short term capital gains will be taxed as per your income tax slab (if held for less than 3 years)
Please consult a CA for current tax rules and liability since there could be changes when you are reading this article.
Other useful informationOther details
|Minimum Investment (Rs)||5000/-|
|Minimum SIP (Rs)||500/-|
|Expense Ratio (%)||1.99 for regular plan & |
0.86 for direct plan *
|Any Lock-in condition||No|
- Expense ratio seemed little on higher side to me
- * More than 1% benefit in a direct plan. If you are still on regular plans, you can read my review of Kuvera and start investing in direct plans.
- ** Exit Load of 1% if redeemed / switched-out within 1 year from the date of allotment. In line with most of equity schemes.
My personal view is this is a good fund in its category. You can consider it for investment. It gives us focused approach with Multi cap asset allocation. So if you are investor who prefer less stocks but at same time would like mix of large, mid and small cap, you can consider this fund.
But however good a fund may be, it is not suitable for everyone. You should be asking few questions to yourself to check if this is right fund for you. You should be considering this fund if you
- believe in concentrated approach of investing – less the stocks, better the returns
- prefer blend of growth and value style investing
- are not a conservative investor who believes in safety over returns.
- have stomach for that little extra volatility to get better returns
- are investing in this fund to get exposure to all the three segments – Large cap, Mid Cap and Small cap. You may prefer another fund like Axis Focused 25 Fund if you want to avoid small cap allocation
- Belongs to Focused Fund – Suitable for aggressive style investors who want to invest in focused manner ( less stocks ) in hope of better returns compared to more diversified mutual funds.
- Style of investment is blend of Growth and Value.
- Asset allocation across Large, Mid and to some extent Small cap companies
- Consistent performer beating category most of the time. Outperforms when market is doing good.
- Better risk adjusted returns, High Alpha but volatile.
- Experienced fund manager and long term association with fund – A big plus
- USP of fund – Fund Manager and Asset allocation
- Long term track record but earlier it was different fund. Reasonable Assets Under Management
- Taxation benefits of Equity funds
- No lock in but little higher on expense ratio which eats our returns
As you can see from above list, SBI Focused Equity Fund ticks most of the boxes for somewhat aggressive investor who wants asset allocation across different caps. One can definitely consider this fund as an option in their portfolio. It gives dual advantage – Focused and Muti Asset in one single fund. One can also consider this fund as tactical switch option during good times as that is when it really rewards investors.
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