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Is the Magnum Comma Fund good?

July 12, 2005

Summary
  • Type
  • Open-ended equity (diversified)
  • Benchmark
  • BSE 200
  • Min. Investment
  • Rs 5,000
  • FaceValue
  • Rs 10
  • Entry Load
  • Nil*
  • Exit Load
  • 2.00% (maximum)**
  • Issue Opens
  • June 30, 2005
  • Issue Closes
  • July 25, 2005
    *Post new fund offer period, entry load: 2.25% (maximum); exit load: nil
    **On exit within 6 months of scheme's reopening

    Investment Objective

    To generate opportunities for growth along with possibility of consistent returns by investing predominantly in a portfolio of stocks of companies engaged in the commodity business within the following sectors - Oil & Gas, Metals, Materials & Agriculture and in debt & money market instruments.

    Is this fund for you?

    Magnum Comma Fund (MCF) is the latest offering from the SBI Mutual Fund stable. As stated in the investment objective, the fund is mandated to invest largely in stocks of companies involved in the commodity business from the stated sectors i.e. oil & gas, metals, materials and agriculture. MCF has been positioned as an investment avenue that offers investors the opportunity to access the benefits of investing in commodities. The fund also operates on the premise that commodities are positively correlated to inflation and can be an effective hedge in an inflationary scenario.

    A significant portion (atleast 65%) of MCF's portfolio will be held across just four sectors. Consequently the fund will hold a sectorally concentrated portfolio. This makes MCF a high risk - high return investment proposition within the diversified equity funds segment. On a positive note, the fund does present investors with a rather unique investment proposition by allowing them to diversify across the commodity sector.

    With regards to the opportunity that commodities provide at present, here is a view from our sister portal Equitymaster.com, 'Before arriving at a consolidated view on commodities, it would be apt to consider sector specific views. Thus, it must be noted that we believe that the steel cycle has most probably peaked and could face more rough times going forward considering the possibility of a supply glut scenario in the medium-term. However, we remain positive on the aluminium and cement industries, where the demand-supply scenario continues to remain favourable. As far as oil & gas is concerned, with crude oil prices showing no signs of cooling down, domestic oil marketing companies would continue to face the heat with the government not letting the rein go off these companies'.

    Portfolio Strategy

    MCF's investment objective lays down its portfolio strategy. The fund will at all times have an exposure of atleast 65% (of net assets) in stocks of companies from the commodity business. The scheme intends to take exposure only in the aforementioned sectors. MCF's investment horizon has been widened by permitting investments in companies, which provide inputs to commodity manufacturing companies.

    InvestmentsAllocation range
    Equity and equity related instruments
    of commodity based companies
    65%-100%
    Foreign securities/ADR/GDR of
    commodity based companies
    0%-10%
    Fixed/Floating rate debt securities
    including derivatives
    0%-30%
    Money Market instruments0%-30%

    MCF can invest upto 30% of its net assets in debt instruments including derivatives. Exposure to derivatives instruments in the scheme can go upto a maximum of 50% of the scheme's equity portfolio; investments in derivatives will be made through either stock options and futures or index options or futures.

    Fund Manager Profile

    Mr. Sandip Sabharwal is an Assistant Vice President and Fund Manager. He is a Chemical Engineer from IIT - Delhi and holds a Post Graduate Diploma in Management from IIM-Bangalore. Mr. Sabharwal has been associated with SBI Mutual Fund since 1995; he worked as a research analyst for the first three years where he covered a number of sectors and then moved to fund management. Mr. Sabharwal manages Magnum Contra, Magnum Global and Magnum Multiplier among other funds.

    Outlook


    More Specials

    Funds from SBI Mutual Fund have clocked very impressive performances in the recent past; also the fund house should be credited for having best ridden the mid cap wave vis--vis its peers. However, the performance of equity-oriented schemes from the fund house remains to be tested during a prolonged bear phase.

    Another aspect which needs to be considered is the aggressive style (concentrated portfolios - in terms of sectors and stocks) which is a common trait with most equity-oriented funds from SBI Mutual Fund.

    MCF is unlikely to be any different from its peers in terms of risk profile. With a sectorally concentrated portfolio and the fund house's aggressive fund management style, MCF is likely to be a typical high risk - high return investment proposition. Investors, who wish to add a unique investment proposition to their portfolios and are willing to take on higher risk for the same, can consider investing in MCF.


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