SBI Mutual Fund - Investment Philosophy

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Equity

Our Investment philosophy revolves around the concept of growth at a reasonable price whereby we invest in growth oriented stocks which are available at attractive relative valuations.

We use a combination of the Top down and Bottom up approaches to investment.

Top down approach for sector allocation
Bottom up approach for stock selection

We identify and invest in businesses that have a sustainable competitive advantage.

We invest with a medium term view, with an investment horizon of at least 18 months.

Risk control is an important element of our strategy.

We believe in pro-active fund management to out-perform benchmark indices

In determining our investment universe, we employ a multi-stage filtering process. At the first level filter, we look at liquidity. At the second level filter, we look at management quality. The third level is the competitive position of the company and the final level is the share price valuation.

Debt:

There are three main types of debt funds and the investment philosophy for each differs due to the different investment objectives and type of investors.

Liquid Fund (Magnum InstaCash Fund)

The investment philosophy of this scheme is to invest in short term money market debt instruments like T-bills, commercial paper, debentures, certificate of deposits, etc to provide a higher than average rate of return.

In doing so three main types of risks are actively managed. Liquidity Risk, Credit Risk and Interest rate Risk.

Liquidity Risk: A mix is maintained between low yield highly liquid instruments and high yield but illiquid instruments. This is to ensure that the saleable instruments can be sold in times of redemptions but at the same time the fund maintains higher than average returns.

Credit Risk: The credit risk in short term instruments (i.e. upto one year) is minimal however due diligence and credit reviews are undertaken pre and post investment in any issuer. Only issuers with highest rating (i.e. P1+ or equivalent) are considered.

Interest Rate Risk: The endeavour is to protect the scheme from interest rate movements unlike in an income fund or gilt fund. Therefore the scheme invests mainly in money market instruments and debentures with residual maturity less than six months. Instruments that are prone to high price volatility like G Secs are not considered. The duration of the portfolio is maintained between three to six months. However view based purchases and sales to take advantage of interest rate movements are taken at times.

Income Fund (Magnum Income Fund)

The income fund invests in all types of debt instruments. The investment philosophy can be broadly defined as consisting of active duration and interest rate management to give optimal returns. The fund is divided mainly between Government Securities and Corporate Bonds with some residual investments in money market instruments.

Management of this fund involves taking interest rate views based on various macro and micro factors like state of the economy, monetary policies of RBI, liquidity in the banking system, credit growth, global interest rates, etc.

Micro management consists of sectoral allocation, maturity profile, credit reviews, yield curve analysis and trading based on spread movements etc. Investments in corporate bonds are done after extensive credit appraisal since the investments are in long-term debentures. Investments are done only upto AA rated category. Unrated instruments/companies are not considered.

Gilt Fund

Gilt Fund invests in the gilt-edged government securities, which is predominantly a wholesale market. It allows retail investors to participate in this market. The Gilt Fund aims to maximise returns by active interest rate management, with zero credit risk. Active interest rate management involves studying the domestic and international politico-economic scenario as well as in-depth analysis of the liquidity in the system, the shape of the yield curve and the spreads between various sectors on the curve.

To maximize the "risk adjusted returns" for the investors, based on their risk tolerance.

Manage the schemes on a "Portfolio basis".
Active management of interest rate risk.
Credit risk management by following the conservative approach.
Continuous monitoring